At present, in the directed energy deposition (DED) of metals, the heat transfer of the melt pool and microstructural evolution are not fully understood. This study investigates the thermal effect on the microstructure and the mechanical properties of DED AISI 316L, using in situ optical monitoring. Five thin-wall samples were tested to determine the effect on microstructural evolution and mechanical properties with variable laser powers and scanning speeds. A comprehensive optical monitoring system with a CMOS (coaxial complementary metal oxide semiconductor) visual module and an infrared camera was adopted in analyzing the temperature gradient and the solidification rate. The emissivity of the melt pool was calibrated, using the melt pool length, extracted from the coaxial visual image. The results showed that microstructures mainly consist of the coarse columnar grain and the equiaxed grain at the top layer of AISI 316L samples. The direction of epitaxial growth of columnar grains is affected by the compromise between directional heat flux and crystallographic direction. High numerical temperature gradient and high solidification rate are beneficial to obtaining fine grain size and high yield stress. A modified microstructure map for DED AISI316L was established, which correlates the solidification parameters with a solidification microstructure. This research study, combining temperature distribution, solidification parameter, microstructure, and tensile property, provides an experimental identification of solidification parameters and the model on the solidification theory for precision control of DED process.