Microstructure evolution during the formation of B2-NiAl by high energy ball milling of equiatomic elemental mixtures was studied by X-ray diffractometer, scanning electron microscopy, and transmission electron microscopy (TEM). The crystallite size, lattice defects and ordering of the B2-NiAl were monitored via TEM as function of milling time. The diffusion reaction, Ni+Al→NiAl3 or/and Ni2Al3, occurred during high energy ball milling, and to a certain extent offered the stored energy for the explosive exothermic reaction, Ni+Al→B2-NiAl. The fine microstructure of newly formed B2-NiAl after 5 h milling involved high density defects, e.g. antiphase boundary, long range ordering domains, vacancies, and dislocations.