It is well known that the shape memory effect of NiTi alloy is closely related to the micro-structural characteristics. Neutron diffraction method can used to explore the changes of the phase transformation, lattice strain and twining reorientation of bulk NiTi alloy during deformation caused by the applied stress. In this paper, combining the four types of deformation characteristics in the macro stress-strain curves of dual phase NiTi alloy and using in-situ neutron diffraction measurement, the micromechanical interactions and phase transformation are determined. The volume fraction of the initial austenite before deformation is about 22%. The contrast transformation, which is corresponding to the lattice strain rapid decreasing of (110)B2 and increasing of (002)B19', reveals that the stress-induced transformation from austenite to martensite phase appears with the volume fraction of austenite decreasing rapidly and 011 II type twinning increases at the low strain hardening stage. At the same time, the initial martensite grains change their orientation to a favorable direction and the new {201} type martensite twinnings induced with the increase of applied stress cannot recover after unloading. At the high strain hardening stage, the twinning deformation is considered to be the main mechanism from the observing of the changes in the full width at half maximum (FWHM). Meanwhile, the slipping caused by dislocation is the main deformation mechanism corresponding to the obvious increas of the FWHM at the statured stage of the strain hardening.