Physical mechanism for dynamic recrystallization of NiTi shape memory alloy subjected to local canning compression at various temperatures, 600, 700 and 800 °C, was investigated via electron backscattered diffraction experiments and transmission electron microscopy observations. With increasing deformation temperature, fractions of recrystallized grains and substructures increase, whereas fraction of deformed grains decreases. In the case of 600 and 700 °C, continuous dynamic recrystallization and discontinuous dynamic recrystallization coexist in NiTi shape memory alloy. In the case of discontinuous dynamic recrystallization, the recrystallized grains are found to be nucleated at grain boundaries and even in grain interior. The pile-up of statistically stored dislocation lays the foundation for the nucleation of the recrystallized grains during discontinuous dynamic recrystallization of NiTi shape memory alloy. Geometrically necessary dislocation plays as an important role in the formation of new recrystallized grains during continuous dynamic recrystallization of NiTi shape memory alloy.