Ratcheting behavior of the materials has been extensively investigated and simulated in the last two decades, since it is important in the design and assessment of engineering structure components subjected to asymmetrical stress--controlled cyclic loading. However, most of the referable literature concerned only the macroscopic phenomenon of ratcheting and its phenomenological models. Therefore, the microstructure evolution of SS304 stainless steel during uniaxial stress--controlled cyclic loading with the ratcheting deformation was observed by using OM, SEM and XRD methods. Several specimens with the same applied stress level were first tested under the stress--controlled cyclic loading with different numbers of cycles macroscopically, and then the thin--filmed samples obtained from the specimens subjected to different numbers of cycles were microscopically observed. The results show that when the ratcheting strain reaches a certain value high enough, the strain--induced martensite transformation occurs in the process of ratcheting deformation. The resultant phase is the lath α--martensite and the amount of the induced martensite increases gradually with the number of cycles, which is proved by the quantitative analysis of XRD. It is also concluded that the plastic deformation caused by the martensite transformation has a un--negligible contribution to the total value of ratcheting strain. The total ratcheting deformation should be considered as a superimposition of two parts, i.e., the one caused by applied cyclic stress and the other caused by the strain--induced martensite transformation.