The microstructure of localized deformation layers is inevitably altered in the machining process. In this study, the microstructural evolution of localized deformation layers due to tool wear in the turning of titanium alloy (Ti-6Al-4V) was examined via analysis of the grain boundaries, crystallographic texture, and phase transformation. The machined surface exhibited strong plastic activities within the flowing region in the case of a worn tool, and additional mechanical loads caused deeper deformation because of more ranges of the softened materials. The plastic activities in the localized deformation layer were enhanced by the additional thermomechanical loads because of tool wear, causing grain distortions, elongation, and deformed grain boundaries. High-density grain boundaries were clustered in the localized deformation layer with the increase in the tool wear, and the tool wear promoted the generation of local misorientation and a corresponding gradient. With the increase in the tool wear, the percentages of small grains increased, and various degrees of refinement occurred. The texture enhancement regions indicated that the preferential deformation texture was modified by the retained shearing, where the basal texture {10-10}< 0001 > changed to shear C fibre textures. The phase transformation was analysed from the viewpoints of the variation in the relative peak intensities and the phase volume fractions. The microstructural evolution underwent a gradual transition process, which was determined by the thermomechanical conditions associated with the tool wear. The results have great significance for optimizing the tool wear values to improve the surface integrity and provide a novel avenue for material design.