To improve the fatigue properties of structural steel, a novel surface modification process which combines high-frequency induction heating (IH) with fine particle peening (FPP) was developed. IH-FPP treatment was performed on the surface of structural steel specimens (0.45%C) at temperatures from 600 to 750 °C, with peening times of 60 and 120 s. To determine the characteristics of the treated surfaces, the microstructure was observed using an optical microscope and a scanning electron microscope. Vickers hardness and residual stress distributions were also measured. The characteristics of fine-grained microstructures were examined by electron backscatter diffraction. Furthermore, in order to investigate the effect of the grain refinement achieved by IH-FPP treatment, rotational bending fatigue tests were performed on treated specimens. Results showed that IH-FPP treatment created fine-grained microstructures beneath the surfaces of steel samples. The average ferrite grain size was 4.06 μm for a treatment temperature of 700 °C, and finally 0.76 μm for 600 °C. This was due to dynamic recrystallization in the processed region. IH-FPP treated specimens exhibited a higher fatigue strength than untreated specimens. As almost no compressive residual stress was measured in the treated or untreated specimens, the increase in fatigue strength resulting from IH-FPP treatment was due solely to grain refinement.