This study evaluates phase transformation kinetics under ultrafast cooling using femtosecond X-ray diffraction for the operand measurements of the dislocation densities in Fe–0.1 mass% C–2.0 mass% Mn martensitic steel. To identify the phase transformation mechanism from austenite (γ) to martensite (α′), we used an X-ray free-electron laser and ultrafast heating and cooling techniques. A maximum cooling rate of 4.0 × 103 °C s–1 was achieved using a gas spraying technique, which is applied immediately after ultrafast heating of the sample to 1200 °C at a rate of 1.2 × 104 °C s–1. The cooling rate was sufficient to avoid bainitic transformation, and the transformation during ultrafast cooling was successfully observed. Our results showed that the cooling rate affected the dislocation density of the γ phase at high temperatures, resulting in the formation of a retained γ owing to ultrafast cooling. It was discovered that Fe–0.1 mass% C–2.0 mass% Mn martensitic steels may be in an intermediate phase during the phase transformation from face-centered-cubic γ to body-centered-cubic α′ during ultrafast cooling and that lattice softening occurred in carbon steel immediately above the martensitic-transformation starting temperature. These findings will be beneficial in the study, development, and industrial utilization of functional steels.