Vasco X-2M is a low carbon tool steel which is being considered for critical gear applications. Since toughness is an important property for these applications, the Charpy V-notch impact energy was tested as a function of tempering temperature and found to drop considerably at 480C temper and above. A TEM investigation was carried out in order to better understand the results of this test. The precipitation sequence of carbides was examined along with their morphology, structure and orientation relation to the matrix. The precipitation of the intralath M3C carbides occurred on quenching from austenite. These carbides were then present in all tempered samples. M2C carbides were observed at 480C and 590C temper, and evidence for precipitation of these carbides was based on hardness data at 480C temper and TEM observations at 590C temper. After aging 200h at 590C, the ceitientite was observed to be in the process of transforming in an in-situ manner to an M7C3 carbide. The minimum in the Charpy impact energy was found to occur when both coarse M3C and a very fine dispersion of M2C were present in the microstructure.