The formation of strain-induced martensite in AISI 201 austenitic stainless steel was followed by in situ synchrotron X-ray diffraction during tensile testing. Real-time information allowed tracking microstructural changes related to the decomposition of metastable austenite (γ) into hcp-ε-martensite and bcc-α′-martensite. Approximately 78% of α′-martensite was found after an equivalent strain of 0.39 and a corresponding elongation of 0.70 in the analyzed region. Microstructural characterization was carried out using electron backscatter diffraction and scanning electron microscopy. The work hardening behavior of each phase was evaluated and a strain partitioning between martensite and austenite was observed. Microstrain in austenite increased with strain whereas it remained nearly unchanged in α′-martensite during the experiment. At the end of the test, these two phases showed similar values of microstrain. The formation of martensite and the accumulation of defects in austenite are responsible for the overall work hardening behavior. Kernel average misorientation analyses showed very similar values of stored elastic energy in austenite and α’-martensite. Orientation relationships among the phases close to {111}γ//{0002}ε//{011}α′ and γ// ε// α′ were found.