In this study, we conducted in-situ tensile deformation tests using synchrotron X-ray and neutron diffraction techniques on Nb-bearing AISI 201 austenitic stainless steel specimens with varying grain sizes, including ultrafine (UFG, 0.28 μm), fine (FG, 1.75 μm), and coarse (CG, 110 μm) grains. The primary objective was to investigate the effect of grain size on the evolution of lattice strains and deformation mechanisms. Our findings reveal that grain size significantly impacts the evolution of lattice strains, peak broadening, and the distribution of load between the austenite and martensite phases. Notably, the average lattice strain and peak broadening were found to be higher in the CG specimen compared to the UFG and FG counterparts. While the lattice strains in the UFG and FG steels are all compressive, a tensile manner can be seen for the CG steel as deformation proceeds. The strain-induced martensite transformation kinetics for the reversion-annealed UFG and FG steels was higher than that of the solution-annealed CG one. A soft behavior from reflection (200) was found compared to other reflections in all UFG, FG, and CG specimens, showing anisotropic elastic properties. The analysis of lattice strain and peak broadening evolutions indicated that dislocation slip predominantly governs the deformation mechanism in the CG steel, while strain-induced martensitic transformation and twinning are more prominent in the UFG and FG specimens.