<p>Dynamic compressive-shear forces on the wheel tread may induce adiabatic shear in the wheel steel, resulting in complex microstructural evolution and dynamic mechanical behavior, potentially exacerbating rolling contact fatigue damage. This study investigates the dynamic compression–shear deformation behavior and microstructural evolution of CL65 wheel steel using hat-shaped samples subjected to quasistatic and dynamic loading. Under dynamic loading, defects such as voids and microcracks develop at the grain boundaries and phase interfaces within the shear bands, resulting in less pronounced strain rate hardening compared to quasistatic samples. Consequently, fibrous deformation structures with significant gaps form in the shear bands of the dynamic samples, and the increase in adiabatic temperature contributes to shear instability. In contrast, shear instability does not occur in quasistatic samples due to their much wider shear bands, which contain fewer defects. In dynamic samples, severe local plastic deformation and elevated adiabatic temperature result in the formation of a transformed adiabatic shear band (t-ASB) with a microhardness of approximately 931.8&#xa0;HV, consisting of ultrafine equiaxed grains formed through a dynamic recrystallization mechanism. The t-ASB comprises austenite, ferrite, martensite, and cementite.</p>