The influence of intercritical rolling on the microstructural development during the processing of hot rolled multiphase steels is characterised. Intercritical rolling leads to dynamic recovery of ferrite and to strain-induced transformation of austenite into ferrite. The prior deformation of austenite considerably influences the bainite transformation. It is shown that a smaller amount of austenite transforms into bainite when bainite forms from deformed austenite. This is explained by the physics of the bainite transformation.