To provide a theoretical basis and evaluation method for surface induction hardening process designing and damage tolerance evaluation of heavy-duty railway axles, the paper studied the evolution of microstructure, hardness, and residual stress gradient of the hardened layer of heavy-duty railway axle steel specimens under different induction hardening processes, analyzed the damage mechanism of defects introduced by EDM (electrical discharge machining) notch and impact damage, clarified the fatigue fracture behavior of induction hardening specimen under different artificial defects and evaluated its damage tolerance. The AAR-CM heavy-duty railway axle steel was used to prepare testing specimens. The hardened layers with different depths were prepared on the surface of the specimens by different induction hardening process parameters, and the residual stress distribution of the hardened layer was measured by X-ray. Different sizes of EDM notch or impact damage were prepared on the surface of untreated (normalized) and induction hardening specimens by EDM and air gun. The bending fatigue properties of the specimens under different damage were studied with a fatigue testing machine. The damage mechanism and fatigue fracture behavior of the specimens were analyzed with an optical microscope and a scanning electron microscope. Through metallographic observation, hardness test, damage morphology characterization, and fatigue fracture analysis, the fatigue properties of normalized and induction hardening specimens under different damage degrees were evaluated respectively. The results showed that the surface structure of the specimen changed from pearlite and ferrite to martensite during the induction hardening process. The effective hardened layer depths of the induction hardening specimens under the three processes were 800 μm (M1), 1 200 μm (M2), and 1 400 μm (M3), respectively. The thicker the effective hardened layer, the greater the surface hardness and residual stress. The shape of the EDM notch was regular. The impact damage shape of the normalized sample was complete. The impact damage morphology of the induction hardening specimen depended on the impact velocity. There were gaps and microcracks at the edge of the high-speed impact damage. When the size of the EDM notch was small, the fatigue strength of the induction hardening specimen was 50% higher than that of the normalized specimen. As the size of the EDM notch increased, the increase of the fatigue strength of the specimen by induction hardening gradually decreased. When the impact damage size was small, the fatigue strength of the induction hardening specimen was 40% higher than that of the normalized specimen. When the impact damage size increased, the fatigue strength of the induction hardening specimen was equivalent to the fatigue strength of the normalized specimen. Under the same damage parameters, the fatigue strength of the induction hardening specimen was not affected by the depth of the hardened layer. Minor impact damage did not affect the fatigue strength of normalized and induction hardening specimens. Surface induction hardening could improve the surface strength of heavy-duty railway axle steel specimens and enhance their impact resistance. The residual compressive stress would weaken the influence of the EDM notch specimen and low-velocity impact damage on the fatigue strength of the specimen. The high-speed impact would destroy the surface integrity of the specimen and weaken the effect of residual compressive stress, resulting in a sharp decrease in the fatigue strength of the specimen. The depth of the hardened layer designed in this paper had little effect on the damage tolerance of the specimen.