Electron backscattered diffraction study was used to determine the preferred orientations of the crystals and texture evolution as a consequence of nitrogen diffusion. In the current study, the nitrided layer on a steel substrate was selected as a model material to investigate the distribution of different phases as well as their crystallographic relationships. Possible phase orientation relationships between the constituents were found based on which a phase transformation mechanism was proposed. The investigation of coincidence site lattice revealed that Σ9 and Σ25 types of grain boundaries are separating the elongated ε-phase grains. It was also presented how the phase constituents’ distribution affects the mechanical properties using nanomechanical indentation technique. Moreover, it was found that the ε-phase exists in three distinguished orientations across the matrix each of which representing a definite phase transformation phenomenon.