Cold working of austenitic stainless steel results in the formation of α′-martensite (ferromagnetic) within the host material (paramagnetic). The role of α′-martensite and carbide precipitation in the reverse transformation mechanism during the heat treatment of AISI 304 is presented. A magnetic Barkhausen noise (MBN) measurement technique was employed to characterize the transformation mechanisms. MBN was found to be an effective tool for studying the transformation mechanisms of austenite to α′-martensite during material deformation as MBN and the ferromagnetic phase showed a good correlation. AISI 304 specimens plastically strained to 51 % were subjected to annealing heat treatment (from 100°C to 1,100°C) for 30 minutes. The α′-martensite to austenite reversion mechanisms were found to have a significant effect on residual stress and materials magnetic properties, thus limiting MBN effectiveness in studying the reverse transformation process. Residual stresses go from tensile to compressive between 500°C and 600°C as a result of the transformation mechanisms, as the austenitic phase is larger than α′-martensite and therefore compresses the remaining α′-martensite. It is suggested that ϵ-martensite has a significant role in the dislocation structural mechanisms in the heat treatment of AISI 304.