Electronic speckle pattern interferometry (ESPI) was applied to hydraulic bulging to analyze the entire deformation process, especially the instability evolution of Al 1060 sheet. Speckle patterns of the specimens were captured continuously to record the deformation fields. The development of full-field strain rate during bulging was represented by the fringe patterns real-timely. The emergence of the defect and its subsequent transformation into groove and crack were revealed clearly by the aberration region in the fringe patterns. The onset of diffuse necking and localized necking were determined by the strain rate distribution curves calculated based on the fringe patterns. Results indicate that ESPI is a satisfying method to analyze the instability and fracture of sheet metals even in three dimension deformation. The growth of micro-crack caused a banded weak region. Diffuse necking occurred in the weak region due to strain localization. A groove generated in the banded weak region and then extended along the length direction. The remarkable strain localization in the groove indicated the onset of localized necking. The thickness of the groove decreased quickly and finally caused fracture. The accurately and quickly determined necking strains would lead to a safer FLD.