The effect of plastic deformation and subsequent annealing on the microstructure and magnetic properties (hysteresis core losses) of non-oriented grain semi-processed Si-Al electrical steel sheet are investigated. Plastic deformation of strip samples is performed by cold-rolling (5–20% reduction in thickness) along the original rolling direction. Annealing is carried out in air during 1 or 60 minutes at temperatures between 650 and 850°C. Measurements of B-H hysteresis curves are performed using a Vibrating Sample Magnetometer and characterization of annealed microstructures is carried out using optical metallography. The results show that hysteresis losses increase by a factor between 1.2 and 2.0 as the magnitude of the applied plastic deformation increases from 5 to 20% reduction in thickness. The rate of recovery of energy losses as a result of annealing depends on annealing time. Short annealing times produce full recovery of the effect of cold work and values of energy losses lower than in undeformed material. The magnitude of the additional recovery increases with strain but does not depend on annealing temperature. Long annealing times, which induce complete recrystallization, and either normal or abnormal grain growth, enhance recovery of hysteresis losses. The rate of recovery increases as both the strain and annealing temperature increase. Recovery of the deformation microstructure and internal stress relief produce only limited recovery of the magnetic properties. However, recrystallization and grain growth brings about a significant decrease in hysteresis losses.