Rail grinding is widely used as a technique to both reprofile the railhead in case of wear and to remove damage. However, grinding may lead to surface burning and the formation of a white etching layer (WEL). Taking into account the rail head position, the study established an analytical thermal model based on a non-uniformly distributed heat source to predict the temperature field during grinding. The grinding temperature during a rail grinding experiment is measured through thermocouples to validate the model. In addition, the rail material response in terms of surface burn and white etching layer is analyzed in detail. Results indicate that with a grinding temperature of around 400 °C, a WEL starts to appear on the rail surface. Retained austenite is found on the ground rail surfaces, indicating the existence of martensite, resulting from the coupling effect of thermal stress and mechanical stress. A diagram is developed to describe the relationship between the grinding temperature, surface burn, and WEL.