In the very high cycle fatigue regime, fatigue crack initiation in high-strength steels is usually correlated to a subsurface inclusion with a fine granular area (FGA). Localized stress-strain concentration at the subsurface inclusion is a critical factor. Fatigue crack initiation with an FGA in the bulk matrix without any defect has rarely been reported. In this paper, a fundamental study on the formation of FGAs in the bulk matrix of an austenitic stainless steel has been carried out using a progressive stepwise load-increasing test with a cycle step of about 108 cycles. FGA formation in the subsurface bulk matrix has been observed. The micro structural damage in the fatigue-tested specimens has been studied using the electron channeling contrast imaging electron microscopy technique. Strain localization and grain fragmentation are the main processes for the formation of FGAs. Local plasticity exhaustion leads to crack initiation due to local stress concentrations. This method can also be used to predict the fatigue damage process, especially the damage rate in individual specimens.