In-envelope hybrid manufacturing systems comprised of directed energy deposition (DED) and machining provide flexibility for the fabrication of complex geometries with minimal setup changes. However, for these manufacturing set ups, the effects of deposition parameters such as laser power and scanning speed on the quality of the build remain relatively unexplored. An important aspect for developing components with reliable mechanical properties is a thorough understanding of DED thermodynamics during fabrication. Therefore, DED thermodynamics were defined based on the strengthening properties derived from the thermal gradient (G) and solidification rate (R) of the melt pool. Other factors influencing DED thermodynamics include substrate geometry and surface finish which are expected to affect cooling rates and adhesion, respectively. In this work, stainless steel 316L specimens were fabricated varying laser power intensity, scanning speed, and deposition substrate. The effect of these parameters on the microstructure of the sample components were analyzed. Microstructural evolution at various points within and between layers was studied and correlated to localized hardness. An increase in mechanical properties for fine, equiaxed grains demonstrates the Hall-Petch principle for strengthening of components.