A　new　environment-friendly　free-cutting　steel　alloyed　with　elemental　Sn　(Y20Sn)　was　developed　to　meet　the　requirements　of　machinability　and　mechanical　properties　according　to　GB/T8731-1988.　The　machinability　of　the　steel　is　enhanced　by　the　segregation　of　elemental　Sn　at　grain　boundaries.　The　effect　of　Sn　segregation　on　intergranular　brittle　fracture　at　normal　cutting　temperature　from　250A　degrees　C　to　400A　degrees　C　is　confirmed.　The　formation　mechanism　of　main　inclusions　MnS　is　influenced　by　the　presence　of　Sn　and　the　attachment　of　Sn　around　MnS　itself　as　a　surfactant,　and　this　mechanism　also　explains　the　improvement　in　machinability　and　mechanical　properties　of　the　steel.　In　the　steel,　the　relevant　inclusions　are　mainly　spherical　or　axiolitic,　and　are　uniformly　distributed　in　small　volume.　Such　inclusions　improve　the　machinability　of　the　steel　and　do　not　impair　the　mechanical　properties　as　well.　Experimental　results　demonstrate　that　the　appropriate　content　of　Sn　in　the　steel　is　0.03wt%　to　0.08wt%,　and　the　remaining　composition　is　close　to　that　of　standard　Y20　steel.