In this article, we probe the strain partitioning between the microstructural features present in a continuously cooled carbide-free bainitic steel together with damage nucleation and propagation. These features mainly comprise of phases (bainitic ferrite, martensite, and blocky/thin film austenite), interfaces between them, grain size and grain morphology. A micro Digital Image Correlation (μ-DIC) technique in scanning electron microscope is used to quantify the strain distribution between these microstructural features. The results show a strong strain partitioning between martensite, bainitic ferrite and retained austenite that provides weak links in the microstructure and creates conditions for the crack initiation and propagation during deformation. Blocky austenite islands accommodate maximum local strains in the global strain range of 0–2.3% and undergo strain-induced austenite to martensite transformation governing the local strain evolution in the microstructure. However, the local strains are minimum in martensite regions during entire in-situ deformation stage. Narrow bainitic ferrite channels in between martensitic islands and martensite-bainitic ferrite interfaces are recognised as primary damage sites with high strain accumulation of 30 ± 2% and 20 ± 3% respectively, at a global strain of 9%. The inclination of these interfaces with the tensile direction also affects the strain accumulation and damage.