In this paper, surface nanocrystallization of NiTi intermetallic alloy by a novel method is reported. The NiTi alloy is processed by laser shock peening (LSP) and controlled annealing. The microstructure of the NiTi alloy after processing is characterized by transmission electron microscopy. At the top surface of the material, a nanostructure with bimodal grains is obtained. The mechanism of the formation of the bimodal microstructure is discussed. At the material subsurface, deformation twins are generated by LSP and retained after controlled annealing. Tensile test results showed that both strength and ductility are significantly improved through LSP and controlled annealing.