Abstract: Transmission electron microscopy was performed to investigate the microstructures of a secondary phase and its surrounding matrix in a Co38Ni33Al29 ferromagnetic shape memory alloy. The secondary phase shows a γ′ L12 structure exhibiting a dendritic morphology with enclosed B2 austenite regions while the matrix shows the L10 martensitic structure. A secondary phase-austenite-martensite sandwich structure with residual austenite ranging from several hundred nanometers to several micrometers wide is observed at the secondary phase-martensite interface due to the depletion of Co and enrichment of Al in the chemical gradient zone and the effect of the strong martensitic start temperature dependency of the element concentrations. The crystallographic orientation relationship of the secondary phase and the B2 austenite fits the Kurdjumov-Sachs relationship.