Investigations by electron backscatter diffraction (EBSD) and X-ray diffraction with the use of synchrotron radiation, as well as parallel extended finite element (XFEM) simulations, reveal the evolution of the 316L stainless steel microstructure in the vicinity of a macro-crack developing at the temperature of liquid helium (4.2 K). The fracture propagation induces a dynamic, highly localized phase transformation of face-centred cubic austenite into α’ martensite with a body-centred cubic structure. Synchrotron studies show that the texture of the primary phase controls the transition process. The austenite grains, tending to the stable Brass orientation, generate three mechanisms of the phase transformation. EBSD studies reveal that the secondary phase particles match the ordered austenitic matrix. Hence, interphase boundaries with the Pitsch disorientation are most often formed and α’ martensite undergoes intensive twinning. The XFEM simulations, based on the experimentally determined kinetics of the phase transformation and on the relevant constitutive relationships, reveal that the macro-crack propagates mainly in the martensitic phase. Synchrotron and EBSD studies confirm the almost 100% content of the secondary phase at the fracture surface. Moreover, they indicate that the boundaries formed then are largely random. As a result, the primary beneficial role of martensite as reinforcing particles is eliminated.