Nanocrystalline stainless steel powder was produced by ball milling of austenitic stainless steel scrap chips. The structural and morphological changes of samples during ball milling and after subsequent heat treatment were investigated by X-ray diffractometery, scanning electron microscopy and microhardness measurements. During ball milling the austenite in as-received chips partially transformed to the martensite phase with nanoscale size grains of similar to 15 nm. This structure exhibited high microhardness value of about 850 Hv which is much higher than that for original samples. The deformation-induced martensite partially transformed to austenite after annealing at 700 degrees C for 1 h reducing the hardness of powder particles.