Fully recrystallized Zircaloy-4 was cold rolled to 20% reduction in thickness. The deformed microstructure had fragmented and non-fragmented grains. Fragmentation represented deformation-induced refinement in grain size. Typically, the fragmented grains had more misorientation and were finer than the as-received grains. The deformed samples were subjected to 650°C annealing for different time periods, followed by water quenching. Based on experimental observations, three distinct stages of annealing were noted. Stage I caused changes in the misorientations of the non-fragmented grains, while the fragmented regions remained unaffected. This was also the most effective stage for residual stress relief. In stage II, discontinuous recrystallization and grain coarsening consumed the fragmented regions. This stage provided the highest softening. Finally, stage III created recovery-induced grain refinement of the larger non-fragmented grains. A combination of indirect and direct observations thus provided a complete picture of the annealing related microstructural changes in a moderately deformed commercial Zirconium alloy. © 2015 Elsevier B.V.