We investigate the microstructural degradation during rolling contact fatigue (RCF) in a martensitic dual-hardening bearing steel. The dual-hardening steel makes use of both carbide precipitation and intermetallic precipitation hardening. The microstructural degradation leading to fatigue failure is studied using electron microscopy, atom probe tomography, and synchrotron X-ray diffraction (SXRD). The initial microstructure of the steel consists of tempered martensite with a fine dispersion of secondary M7C3, and NiAl precipitates. During RCF testing at 2.2 GPa contact pressure, ferrite microbands develop and the partial dissolution of NiAl and M7C3 precipitates occur within the ferrite microbands. For the RCF testing at higher contact pressure of 2.8 GPa, nanosized ferrite grains develop in the ferrite microbands. The SXRD analysis reveals a decrease in dislocation density in the sub-surface region experiencing microstructural degradation. This is believed to be associated with the rearrangement of dislocations into low energy configuration cells. We conclude this manuscript by proposing a microstructure decay mechanism for martensitic dual-hardening bearing steel that provides insights in the fatigue initiation process.