Effect of deformation on damping capacity and microstructure of Fe–22%Mn–8%Co alloy has been investigated. The γ→ε stress-induced martensitic transformation occurs during deformation in the alloy. The amount of ε martensite increases rapidly up to 5% deformation, and gradually increases with further deformation. The damping capacity of the alloy exhibits a maximum at around 5% deformation, and decreases with further deformation in spite of the increase in ε martensite content. The deterioration of damping capacity beyond 5% is ascribed to the dislocations introduced during deformation, which obstruct the movement of damping sources of the alloy.