Austempered ductile cast iron (ADI) has emerged as an important engineering material in recent years because of its excellent mechanical properties. These include high strength with good ductility, good wear resistance, fatigue strength and fracture toughness. It is therefore considered as an economical substitute for wrought or forged steel in several structural applications especially in the automotive industry. In this investigation, a nodular or ductile cast iron with predominantly pearlitic as-cast structure was processed by a novel two-step austempering process. Two batches of samples were prepared. All the specimens were initially austenitized at 927 °C (1700 °F) for 2 h. The first batch of samples were processed by conventional single-step austempering process at several temperatures such as 260 °C (500 °F), 273 °C (525 °F), 288 °C (550 °F), 302 °C (575 °F), 316 °C (600 °F), 330 °C (625 °F), 343 °C (650 °F), 357 °C (675 °F), 371 °C (700 °F), 385 °C (725 °F) and 400 °C (750 °F) for 2 h, whereas the second batch of samples were processed by the two-step austempering process. These samples were initially quenched for 5 min in a salt bath maintained at 260 °C (500 °F) and then austempered for 2 h at several austempering temperatures. These temperatures were 288 °C (550 °F), 302 °C (575 °F), 316 °C (600 °F), 330 °C (625 °F), 343 °C (650 °F), 357 °C (675 °F), 371 °C (700 °F), 385 °C (725 °F) and 400 °C (750 °F). Influence of this two-step austempering process on microstructure and mechanical properties of ADI was examined. Test results show that this two-step austempering process has resulted in significant improvement in yield and tensile strengths and fracture toughness of the material over the conventional single-step austempering process.