Lüders-type propagating deformation bands were observed in specimens of irradiated 316L stainless steel samples removed from Spallation Neutron Source target vessels after service. Mechanical testing with digital image correlation (DIC) and in-situ tensile testing with scanning electron microscopy electron backscatter diffraction showed that the observed Lüders-type behavior was not related to the known transformation-induced plasticity or twinning-induced plasticity behavior. Instead, the phenomenon occurs at small local strain values before a significant amount of martensite or deformation twins appear in the microstructure. Microstructural analysis and in-situ mechanical test results suggest Lüders-type band formation and propagation were related to the appearance and evolution of defect-free channels—analogous to slip bands. A modified Swift equation with a Ludwigson-like component was offered to rationalize the phenomenon and model the strain-softening processes at small strain values. The results indicate complex microstructural processes and deformation mechanisms were active at small strain values and underline the benefits of advanced mechanical test approaches such as DIC.