Friction stitch welding is a promising underwater solid-phase joining technology, and research on the process is important in both theory and engineering. Friction stitch welded joints obtained in underwater environments have high hardness, but poor mechanical properties. An underwater local dry chamber system was designed to avoid the disadvantage of fast cooling in wet conditions, which would assist in decreasing the hardness, and the microstructure and mechanical properties of friction stitch welds of DH36 steel in local dry conditions were investigated. The results showed that, when using LF2 steel as plug material and the welding parameters of 7000-rpm plug rotating speed, 35-kN axial force, 40-kN forging force, 14-mm burn-off distance of the plug, 8-s forging time, and a 25° tapered bore with a 19° tapered plug, excellent mechanical properties were obtained in the weld produced in a local dry chamber in an underwater environment. The microstructure presented metallurgical bonding at the sidewalls and joint bottoms. The maximum hardness of the weld was 381 HV10, and the average was 300 HV10, which were lower than those obtained in wet conditions. The maximum tensile strength of the weld was 500 MPa. Tensile fracture occurred at the base metal under the average impact energy of 45 J at 0 °C on the bonding interface.