We studied the role of VC precipitation in improving the shape memory effect (SME) of the as-solution treated Fe–Mn–Si-based shape memory alloys by examining the microstructures developed during aging and deformation using transmission electron microscopy and electron channeling contrast imaging. Our results suggest that VC particles are not the only product of aging. Upon aging at 650 °C, the precipitation of VC particles is accompanied by the formation of profuse dislocations (2.26 ± 0.098 × 1013 m−2). In this case, the SME is not improved compared to the as-solution treated reference state. Upon aging at high temperatures (700–900 °C), a number of stacking faults are formed accompanying the VC precipitation and the SME is significantly improved, where the recovery ratios reach almost twice that of the as-solution treated state (<50%). For these high-temperature aged states, in situ straining experiments reveal that the stacking faults rather than the VC particles play an important role in the stress-induced martensitic transformation, leading to the formation of very thin (<3 nm) martensite plates with a single crystallographic variant within each grain. These martensite plates are in contrast to the very thick (from tens to hundreds of nanometers) and multi-variant martensite plates that prevail in the as-solution treated state. By comparing the characteristics of the martensite plates between the as-solution treated and the high-temperature aged states, the reasons for the improvement of SME by precipitating VC were discussed.