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This paper investigates the microstructure, martensitic transformation and shape memory effect of Co-16Al alloy. The optical micrographs of Co-16at.%Al alloy quenched from 1200°C show that the ε martensite occurs at room temperature, while some remaining γ phase can also be observed. This microstructure analysis can be supported by XRD pattern. It is shown that the alloy undergoes a martensitic reverse transformation at about 220°C during heating. However, no transformation from the fcc phase to hcp phase is detected by DSC measurement upon cooling. It is thought that the precipitation of β phase by aging at high temperature may suppress the martensitic transformation. The tension strain is 12% and the fracture strength is above 800MPa. No obvious yield deformation is observed from the stress-strain curve. SEM images exhibits many dimples on the fracture surface, which means the fracture mechanism is ductile rupture. Bending test show that only 25% deformation can be recovered due to shape memory effect when the pre-strain is 5%.