A deep understanding of adiabatic shear fracture (ASF) during serrated chip formation is essential to explore the material removal mechanism of high speed cutting (HSC). This paper aims to reveal the microscopic details of ASF in serrated chips. The material to investigate was AISI 1045 steel of different hardness grades, and the micro-structural analysis was conducted using optical and scanning electronic microscopes. The investigation showed that at the hardness of HRC50, most fractured surfaces were covered by a large number of dimples elongated along the shear direction, indicating that the fundamental cause of the serrated chip generation is the deformation localization of the adiabatic shear followed by ductile damage fracture in primary shear zones. The higher the material hardness is, the easier the adiabatic shear and ductile fracture take place. A new model was then proposed to interpret the ductile fracture due to adiabatic shear governed by the nucleation, growth and coalescence of micro-voids during serrated chip formation.