In order to research the effect pattern of MnS inclusions on free-cutting steel, we study the microstructure evolution, the damage mechanism and the mechanical properties in free-cutting steel in the presence of MnS inclusions. Spindle shaped MnS is added as inclusions within the free-cutting steel. The mechanical properties were found to change when inclusions were present. The gained results show that the formation of voids causing fracture starts from the interface inside the matrix close to the MnS. From the point of view of nanocomposite strength, the main effect of MnS inclusions is related to stress concentration, leading to the effect of increased stresses near the interface between the interior of the matrix and the inclusions. The inclusions have lower Young's modulus and lower dislocation activity, resulting in smaller deformation of the alloy system, larger interfacial stress concentrations and earlier hole formation. The maximum strain and stress regions of the alloy also appear near the MnS inclusions, which leads to the formation of defects near the MnS inclusions and then fracture of the alloy. MnS inclusions adversely affect the tensile properties of the alloy, such as Young's modulus, yield stress and yield strain. By comparing the stress-strain curves of single crystal iron and alloy containing MnS inclusions, it is indicated that the yield strength of the latter decreases. Slip bands and dislocation lines are first generated around the MnS inclusion, and the phase transition is induced from the original single BCC structure to FCC, HCP and amorphous structures, and the atoms of FCC, HCP and amorphous structures increase with increasing strain, while those of BCC structure decrease, especially after yield strain. This study is significant for understanding the effect of inclusions on the mechanical laws and fracture mechanisms of the alloy.