The relation between elastic and plastic strains and the martensite transformation from face‐centered to body‐centered structure has been investigated in Fe‐Ni 71–29 alloy. Transformation begins at about −30°C and is of the martensite type except that it is not all completed instantaneously but continues at decreasing rate at constant temperature.It was found that (1) There is no anomalous decrease in elastic moduli as theMstemperature is approached, nor isMsaffected by applied elastic stresses. (2) Plastic deformation in a temperature range aboveMscauses partial transformation in amounts decreasing to zero at temperatureMd≈Ms+75°C, but stabilizes against further transformation by cooling. (3) Plastic yield stress increases sharply fromMdtoMsthen drops suddenly to a low value just belowMs. (4) TheMstemperature depends on grain size; a factor of ten increase in grain size reducesMsabout 30°C.These results are contrary to expectations on the basis of the usual homogeneous shear model for the transformation mechanism. They indicate that the martensite phase becomes thermodynamically stable atMdbut that transformation does not begin untilMsbecause of surface and strain energy considerations in growth of a martensite plate from a small nucleus.