Microstructural change during mechanical milling (MM) treatment is investigated in an Fe-0.8mass%C alloy powder with pearlite or martensite as initial microstructure. In addition, effect of the initial microstructure on re-distribution behavior of carbon during MM is discussed in connection with grain refining behavior of matrix by means of TEM observation and DSC analysis. In the case that the initial microstructure is pearlite, cementite easily dissolves during MM treatment with grain refining of matrix, and lattice parameter of ferrite matrix slightly increases with MM treatment owing to solid solutioning of carbon. On the other hand, lattice parameter of martensite, which is much higher than that of ferrite because of the super-saturated carbon, rapidly decreases during MM treatment and approaches to the value of ferrite. Both materials mechanically milled for 360ks have similar ultra fine grained ferritic structure with the almost same grain size (about 15nm) and lattice parameter (0.2866nm). This suggests that there is no large influence of the initial microstructure on the final structure formed by severe plastic deformation. Besides, it can be concluded that most of carbon does not exist in solid solution but segregate at grain boundaries, because the lattice parameter of these materials mechanically milled for 360ks is much smaller than that of martensite without MM treatment.