Water cavitation peening (WCP) with aeration, namely, a new ventilation nozzle with aeration is adopted to improve the process capability of WCP by increasing the impact pressure induced by the bubble collapse on the surface of components. In this study, the influence of water cavitation peening (WCP) treatment on the microstructure of spring steel SAE 1070 was investigated. The microstructural evolution in the near-surface of spring steel SAE 1070 as a function of WCP time was characterized by X-ray diffraction (XRD), optical microscopy (OM). After WCP treatment, changes in the microstructure, as well as residual stress and surface morphologies as functions of WCP time, were recorded using a novel experimental design involving an in-situ observation function. The obtained results indicated that the refinement grains were induced by WCP in the strengthening layer. A stable compressive residual stress layer was found in the near-surface of the investigated spring steel SAE 1070.