Squat is a kind of railhead defects related to rolling contact fatigue (RCF), and regarded as a potential safety hazard in railway networks.The mechanisms of squat initiation and propagation remain unclearly understood.In the current study, several branches of subsurface cracks inside squat defects had been intensively investigated for understanding the development of RCF cracks.From metallographic observations, a few white etching particles were clearly found either located within crack gaps or attached with crack faces.Based on nanoindentation measurements, the hardness of white particles was higher than that in matrix, presenting a possible mechanical property of martensite.A large density of nano-twins in the substructure of white particles can be identified in the transmission electron microscopy bright-field imaging.Their corresponding selected area electron diffraction patterns proved white particles as Fe-C martensite with body-centered tetragonal crystallographic structure.Besides the martensite, a random distribution of oxidized sulphide inclusions (MnS) were found included in white etching particles as well by the energy-dispersive x-ray spectroscopy analyses.The discovery of martensitic transformation and sulphide inclusions (MnS) in the crack of squat defects reveals an accelerated failure mechanism which would be detrimental to operation safety.It is necessary to pay more attentions so that the risk of fatigue failures can be minimized.