The microstructure evolution during annealing in large strain deformed Fe-32%Ni alloy was investigated by transmission electron microscope (TEM). Firstly, the Fe-32%Ni alloy was subjected to multi-axial forging at temperature of 773K and a strain rate of 10-3 s-1 to cumulative strain of 9.0, and then the large strain deformed specimens were annealed at temperature of 973K with different time. The results show that the grains of Fe-32%Ni alloy were obviously refined by severe plastic deformation, and the ultra-fine grains with mean size of about 300nm were obtained when the cumulative strain amounted to 9.0. The large strain deformed microstructure evolves homogeneously and gradually to equiaxed structures with straight and smooth grain boundaries when annealed at temperature of 973K, and there is no observable nucleation stage found during annealing. The annealing process involves two sequential processes i.e. recovery followed by normal grain growth, and the microstructure evolution mechanism is considered as continuous recrystallization.