Porous FeMn alloys with additions of 0, 1, 3 and 5 wt% of Ag were fabricated using powder metallurgy and sintering. The microstructure of the fabricated alloys was characterized using X-ray diffraction, transmission electron microscopy and selected area electron diffraction. While equiatomic FeMn and FeMn-1Ag alloys possess a fully austenitic structure, a change in the crystallographic structure is observed upon addition of 3 and 5 wt% of Ag, where a mixture of γ austenite and ε martensite phases is observed. Compression tests reveal that such structural transition causes an increase of the yield stress. The evolution of microstructure with the Ag content can be understood from theoretical calculations which show that Ag atoms prefer the intrinsic stacking fault (ISF) sites, revealing lower energy for the ε atomic plane sequence. This causes local depletion of the electronic charge, therefore weakening the interatomic bonds at the ISF plane and facilitating the phase transition. In addition, the total energy difference between the γ and ε phases decreases upon Ag addition. This enables the coexistence of both phases in the sample with 5 wt% Ag. Both experimental and theoretical data agree that the magnetization value gradually increases upon Ag addition. This is due to the local stress that is introduced by Ag atoms, which expand the Ag-Fe and Ag-Mn first neighbour interatomic bonds compared to FeMn. This stress results in electronic charge transfer that locally alters the Fe and Mn atomic magnetic moments. These results are appealing for the design of FeMn-based alloys with tuneable phase composition and physical properties for several technological applications.