Using molecular-dynamics simulation, we study the phase transformations in Fe thin films induced by uni- and biaxial strain. Both the austenitic transformation of a body-centered cubic (bcc) film at the equilibrium temperature of the face-centered cubic (fcc)–bcc transformation and the martensitic transformation of an undercooled fcc film are studied. We demonstrate that different strain states (uni- or biaxial) induce different nucleation kinetics of the new phase and hence different microstructures evolve. For the case of the austenitic transformation, the direction of the applied strain selects the orientation of the nucleated grains of the new phase; the application of biaxial strain leads to a symmetric twinned structure. For the martensitic transformation, the influence of the strain state is even more pronounced, in that it can either inhibit the transformation, induce the homogeneous nucleation of a fine-dispersed array of the new phase resulting in a single-crystalline final state, or lead to the more conventional mechanism of heterogeneous nucleation of grains at the free surfaces, which grow and result in a poly-crystalline microstructure of the transformed material.