The accuracy of measuring inclusion size in direct C-scan image of immersion ultrasonic testing is restricted by the lateral resolution of the focused transducer, even if a high frequency is used, and the blurred edge due to scattering of sound waves at inclusions. In this work, an improved image restoration method that is based on the Richardson-Lucy (RL) iterative algorithm is proposed, which is used to restore the C-scan image and improve the accuracy of inclusion size measurement in immersion ultrasonic testing. For the improved RL iterative algorithm, the point spread function (PSF) is derived based on the multi-Gaussian beam model and Kirchhoff approximation, which considers the propagation properties of sound waves at water-steel interface and the spectral characteristics of the transducer with high frequency. In order to determine the final iteration number, the relationship between final iteration number and size of the inclusion in the image is established by restoring the simulated C-scan image and further calibrated with size correction factor. The size correction factor considers the effect of sound attenuation and electro-mechanical transformation encountered in practical testing equipment. Experimental results show that the inclusion sizes measured in restored C-scan images agree well with the optical micrograph results, which prove the effectiveness of the proposed method.