It is generally accepted that dynamic recrystallization (DRX) is the result of shear banding in metallic materials. However, we observed the microstructure evolution in an ultrafine-grained Ti–6Al–4V alloy under quasi-static compression and found the formation of DRX induced micro shear bands at the initial stage of plastic deformation. It is of interest that the strain-localized regions experienced a two-step recrystallization process, thus resulting in the formation of refined dynamic recrystallized (DRX) grains in transition zones and nanograins in core regions of micro shear bands successively. It is suggested that the DRX taking place at local regions led to the strain softening, which subsequently accelerated the formation of micro shear bands. Micro shear bands nucleated, grew wider, multiplied and propagated by means of gradually consuming the DRX regions with the increase of local strains. Those micro shear bands are considered to contribute to synergetic plastic deformation in addition to dislocation slipping at lower strains, while some macro shear bands are regarded as the precursor of fracture at higher strains. Based on the observation results a new DRX mechanism of shear band was proposed. The experimental results in the present work can provide new evidences and novel insights of the shear-band formation, plastic deformation as well as failure mode in UFG alloys under quasi-static loading conditions.