Nanoindentation experiments were performed on the {100} crystal plane of single crystal diamond using molecular dynamics simulation to study the mechanism of its plastic deformation. The relationship between phase transition and plastic deformation during the nanoindentation process was discussed using the load-displacement (P–h) curve and phase transition evolution process obtained from the experiment. It was observed that the initial plastic characteristic of diamond was because of the phase transition, rather than dislocation slip. The nucleation and growth of 1/2[110]{111} perfect dislocation ring during the plastic deformation of single crystal diamond were determined by observing pop-in events and dislocation evolution in P-h curves. The plastic deformation of single crystal diamond was attributed to the formation and growth of 1/2[110]{111} complete dislocation ring caused by the phase transition from disordered sp3 to ordered sp2 carbon atoms based on the further analysis of microscopic defects. It was considered that the phase transition during the nanoindentation of single crystal diamond is an important excitation source for plastic deformation at the atomic scale. Finally, it was observed through the analysis of bond length and angle during the phase transition process that the CC bond fracture of diamond was because of the transformation from sp3 to sp2 carbon atoms, and the fracture and recombination of adjacent carbon atoms, which led to graphitization. This conclusion confirmed that graphitization is the mechanism of plastic deformation of diamond and the pop-in event is caused by the stress release caused by the rupture of CC bond.