<p>Currently, in non-oriented silicon steel, issues such as crack initiation and propagation induced by brittle inclusions have not been effectively addressed. In this paper, X-ray microscopy (XRM) was employed to visualize the three-dimensional process of crack initiation induced by inclusions at the necking region during tensile deformation, and the mechanism how rare earth inclusions suppress crack initiation and propagation was elucidated by combining electron backscatter diffraction (EBSD) analysis with first principles calculations. The results showed that after the addition of 0.0035 wt pct Ce, Al₂O₃ and MnS inclusions were modified to CeAlO₃ and Ce₂S₃ inclusions respectively; after the addition of 0.0033 wt pct La, the inclusions were modified to LaAlO₃ and La₂O₂S inclusions, respectively. Through tensile deformation, the average volume of cracks at the necking region of the steel with Ce addition was 1057.81 <i>μ</i>m³, which was smaller than that of the samples with La addition (1802.51 <i>μ</i>m³) and without rare earth addition (3653.13 <i>μ</i>m³). The thermal expansion coefficients of inclusions and matrix were calculated. And the differences in thermal expansion coefficients between Al₂O₃, MnS, CeAlO₃, Ce₂S₃, LaAlO₃, La₂O₂S and matrix were −3.7 × 10⁻⁶ K⁻¹, 9.49 × 10⁻⁶ K⁻¹, −1.3 × 10⁻⁶ K⁻¹, −0.04 × 10⁻⁶ K⁻¹, −4.96 × 10⁻⁶ K⁻¹, −1.84 × 10⁻⁶ K⁻¹, respectively (at 298 k). The residual stress around CeAlO₃, Ce₂S₃, LaAlO₃ and La₂O₂S inclusions was reduced by 66.7, 40.9, 51.11, and 18.18 pct, respectively. Compared with traditional inclusions, rare earth inclusions are beneficial in terms of thermal expansion coefficient and residual stress, which helps to improve the consistency of the matrix and thereby inhibit the initiation and propagation of cracks.</p>