An industrial application of Fe-based shape memory alloys for joining the pipes in tunnel making constructions requires the proof stress over 400 MPa and 3.5% shape recovery strain. To meet such standards in civil engineering, the Fe-base shape memory alloy containing highdensity of coherent VN precipitates has been developed by designing the composition of the Fe-28Mn-6Si-5Cr (mass%) alloy containing 1.5 vol% VN compounds. In order to make clear the mechanism of enhancement of the proof stress and shape recovery strain, crystallographic investigations were carried out using optical microscopy, X-ray diffraction and high-resolution electron microscopy. The {111}-composed octahedral shaped VN precipitates are formed coherently with a cube-to-cube orientation relationship with the matrix, i.e., ð001Þ P k ð001Þ M and ½100 P k ½100 M . The precipitates are surrounded by the misfit dislocations at every 8 layers of the (100) planes, which is in agreement with the estimation of the lattice mismatch between the precipitate and the matrix phase. The enhancement of shape recovery is explained by the reversible movement of transformation dislocations left around the precipitates in connection to the residual stress yielded by martensite transformation around the precipitates. It is also suggested that the recovery strain could be proportional to the total number of precipitates.