The effect of the amount of -martensite and dislocations on the damping capacity of Fe-12.5 wt.%Cr-20.5 wt.%Mn alloy has been investigated by using a free-decay method of flexural resonant vibration with both free ends. The amount of -martensite has been varied by the number of the thermo-mechanical treatment cycles which consist of annealing, sub-zero treatment and cold rolling. The behavior of dislocations was observed by TEM. The volume fraction of -martensite was increased with the number of treatment cycles and more than 80% of the volume fraction was attained with 4and 5-cycle specimens. The damping capacity increased as the volume fraction of -martensite increased because of the increasing damping sources such as stacking fault boundaries in the and ␥ phases, the interface and -martensite variant boundaries. However, even though the 5-cycle specimen had the same content of -martensite as the 4-cycle specimen, the damping capacity of the 5-cycle specimen was significantly decreased. It is concluded that relatively many dislocations formed in the -martensite phase in the 5-cycle specimen which interfered with operation of the damping sources.