Directed energy deposition (DED) is suitable for fabrication of large Inconel 718 components, however, large columnar dendrites and several laves phase impair the mechanical properties. In this work, the formation mechanism of heterostructure microstructure with coarse grain (CG) and fine grain (FG) alternating distribution was explored, and the evolution process of Laves phase during inter-layer hammering hybrid directed energy deposition (HDED) was revealed. The results show that the heterostructure microstructure composed of CG region and FG region with a ratio of 1:1 was obtained due to the work hardening and recrystallization mechanisms, and the average grain size of CG region and FG region are 68.9 μm and 12.0 μm, respectively. The Laves phase was first fractured into small pieces by hammering and then resolved into the matrix during the subsequent heat input process, which promotes the precipitation of γ″ phase from the matrix. The strength and plasticity of the specimens fabricated by HDED are synchronously improved. The dislocation strengthening and solid solution strengthening are the mainly contributions to the strength improvement, and the grain refinement and heterostructure microstructure increased the plasticity of the hybrid manufactured specimens.