Abstract: In the previous study on the H11 steel fabricated by thermomechanical consolidation of powders made from grinding turning chips, it was found that the toughness of the experimental steel prepared with the powders of different particle sizes was poor. This paper studies the effect of annealing heat treatment on microstructure and mechanical properties of the consolidated steel. The heat treatment involves heating from room temperature to 880 °C at a rate of 10 °C/min, holding for 3 h, cooling in the furnace to 750 °C, holding for 4 h, cooling in the furnace to 550 °C and then air cooling. The mechanical property test, and XRD and SEM observations show the following findings. After the isothermal spheroidizing annealing treatment, the microstructure consists of spherical pearlite and dispersed granular carbide particles. The ductility of the material becomes better with the elongation to fracture increasing from 3.4 % to 12.8 % after the heat treatment, but the tensile strength and hardness decrease. The powder particle size affect the strength and toughness of consolidated H11 steel. The smaller the particle size, the more severe the oxidation after high temperature extrusion forging, and the worse the strength and toughness.