Using molecular dynamics simulation, we studied the influence of pre-existing dislocations on the austenitic and the martensitic phase transformations in pure iron. The simulations were performed in a thin-film geometry with (100) surfaces. We found that dislocations alleviate the transformation by lowering the austenitic transformation temperature and increasing the martensitic transformation temperature. In all cases, the new phase nucleates at the dislocations. The orientation relationships governing the nucleation process are dominated by the Burgers, Kurdjumov–Sachs, and Nishiyama–Wassermann pathways. However, upon growth and coalescence of the transformed material, the final microstructure consists of only few twinned variants separated by twin boundaries; this simple structure is dictated by the free surfaces which tend to form conserved planes under the transformation. After transformation, the material also contains abundant dislocations.