Intermetallic titanium aluminide alloys are multiphase assemblies with complex microstructure and constitution, involving the phases γ(TiAl), α2(Ti3Al), β, and B2. The earlier stages of phase transformation and dynamic recrystallization occurring upon hot-working of such an alloy were investigated at the atomic scale by high-resolution electron microscopy. Accordingly, the conversion of the microstructure is triggered by heterogeneities in the deformation state and non-equilibrium phase composition. The β/B2 phase is apparently unstable under tetragonal distortion, which gives rise to the formation of the B19 phase via distinct shuffle displacements. These processes lead to a modulated microstructure, which is comprised of several stable and metastable phases. The phase transformations are accomplished by the propagation and coalescence of ledges. Large and broad ledges can apparently easily be rearranged into intermediate metastable structures, which serve as precursor for the nucleation of new grains.