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Deformation and work hardening behavior of Fe–17Mn–0.02C steel containing ε-martensite within the austenite matrix have been investigated by means of in situ microstructural observations and x-ray diffraction analysis. During deformation, the steel shows the deformation-induced transformation of austenite → ε-martensite → α'-martensite as well as the direct transformation of austenite → α'-martensite. Based on the calculation of changes in the fraction of each constituent phase, we found that the phase transformation of austenite → ε-martensite is more effective in work hardening than that of ε-martensite → α'-martensite. Moreover, reverse transformation of ε-martensite → austenite has also been observed during deformation. It originates from the formation of stacking faults within the deformed ε-martensite, resulting in the formation of 6H-long periodic ordered structure.