Since the matrix phase is transformed to martensitic phase in shape memory alloys (SMAs) during plastic deformation, complicated residual stresses may arise during deformation, and they may affect the shape recovery ability of the alloys. Thus, it is important to be able to characterize the residual stresses formed in SMAs during plastic deformation and annealing. In this study, X-ray diffraction was used to characterize the residual stress formed in a Fe-Mn-Si-Cr SMA, which was deformed in the tensile direction and subsequently annealed. The results showed that the compressive stress persisted in the tensile direction of the face-centered cubic (fcc) matrix upon tensile deformation and unloading. Compressive stress is believed to result from the hexagonal close-packed (hcp) phase formed during stress-induced martensitic transformation. After the deformed samples were annealed to recover their shapes, the residual stress was considerably reduced. This is believed to be due to the decrease in the formation of the hcp phase or to the recovery of their shapes during annealing. Our results indicated that residual stress in the fcc matrix phase is associated with the shape recovery characteristics of the alloys after martensitic and reverse martensitic transformations.