Stress-induced martensitic transformation and plastic deformation in TiNi alloy have been investigated using transmission electron microscope with an in situ deformation technique. It was found that martensite bands were formed and grew with increasing strain and shrank with decreasing strain in tension. In the second deformation stage, a high density of looped dislocations was formed in the reverse-transformed matrix, while in the first deformation stage dislocations were not formed in the reverse-transformed matrix. The formation of dislocation in the second deformation stage is considered as bearing a relation to reverse martensitic transformation and twinning dislocations lying inside the stress-induced martensite. (C) 1997 Elsevier Science S.A.