Microstructural observation and high-resolution dilatometry were employed to investigate acicular ferrite formation during isothermal holding in the HSLA steel. A decrease in isothermal temperature suppresses formation of polygonal ferrite and promotes formation of acicular ferrite. Island-like martensite/austenite constituents are dispersed inside of the acicular ferrite grain. The displacive model assuming autocatalytic nucleation was developed to describe the incomplete transformation phenomenon well. Decrease of isothermal temperature lowers the activation energy, and thus enhances the formation of acicular ferrite. Increase of amount of polygonal ferrite and acicular ferrite both results in decrease of Ms. Formation of polygonal ferrite causes diffusion of solute alloying atoms into the untransformed austenite, which lowers Ms. Acicular ferrite transformation suppresses martensitic transformation by diffusion of solution atoms during isothermal holding, and introduction of internal stress resulting from volume expansion during FCC → BCC transformation.