The present work focuses on the correlation between the material tendency to be deformed by incremental sheet forming and the microstructural features that appear during the process itself. The material object of the study is the stainless steel AISI 301L. Single-point incremental forming (SPIF) experiments were carried out and the material formability evaluated. X ray diffraction (XRD) analysis was utilized to determine the fraction of transformed martensite along the wall of formed parts at different levels of thickness reduction. TEM analysis was then employed to analyze the microstructure developed during the SPIF process. Two fundamental deformation mechanisms are observed, which could explain the remarkable material formability achievable during the SPIF process: strain induced martensitic transformation, and deformation twinning. Particularly, deformation twinning (instead of dislocation slip) appears to be the preferred plastic deformation mode of austenite at the early stage of the process, leading to the formation of multiple nano-twins in coarse grains that are responsible for the material ductility enhancement.