Real-time in situ neutron diffraction was used to characterize the crystal structure evolution in a transformation-induced plasticity (TRIP) sheet steel during annealing up to 1000 °C and then cooling to 60 °C. Based on the results of full-pattern Rietveld refinement, critical temperature regions were determined in which the transformations of retained austenite to ferrite and ferrite to high-temperature austenite during heating and the transformation of austenite to ferrite during cooling occurred, respectively. The phase-specific lattice variation with temperature was further analyzed to comprehensively understand the role of carbon diffusion in accordance with phase transformation, which also shed light on the determination of internal stress in retained austenite. These results prove the technique of real-time in situ neutron diffraction as a powerful tool for heat treatment design of novel metallic materials.