In the current study, 7 wt.%Ni alloy steel was prepared, hot rolled, and heat treated according to popular quenching, lamellarization, and tempering treatments. The inter-critical lamellarization temperature was varied and the microstructure-property correlation was evaluated in each stage of heat treatment to understand the metallurgical aspects. Optical and detailed electron microscopic techniques were used to characterize and quantify the microstructures. Mechanical responses under uniaxial and impact loading were also recorded for all the studied samples. Tempered martensite with blocky and lamellar morphology, along with retained austenite and ɛ-martensite, were observed in the microstructures after the above-mentioned heat treatment. The lamellarization at 700 ℃ leads to a more uniform distribution of alloying elements and, therefore, promotes the formation of finer retained austenite with uniform distribution, compared to 650 °C lamellarization temperature. The presence of lower matrix strain and uniformly distributed fine retained austenite provides the highest toughness with moderate strength in the 700 °C samples. ɛ-martensite is expected to provide the necessary strength to balance the softening arising due to tempered martensite and retained austenite. Moreover, the uniformly distributed fine and filmy-shaped retained austenite provides thermal stability, and arrests crack propagation, enhancing toughness. The XRD results after impact toughness show that the γ-ε-α transformation takes place during the -196 °C temperature, and during impact toughness testing, ε-α transformations also provide the toughening in the Ni-700+590 sample.