<p>The function of NiTi shape memory alloy (NiTi-SMA) is affected by the formation of a thermal damage layer on the surface during wire electrical discharge machining (WEDM). This study aimed to investigate the mechanisms of material removal, microstructural changes, and thermo-induced phase transitions in NiTi-SMA during WEDM through simulations and experiments. A sparse discharge method was employed to establish an empirical formula for the radius of the discharge channel and to establish a WEDM material removal model by combining heat transfer and flow field analysis. The simulation results indicated that the reaction force of the gasified metal and the surface tension caused by temperature differences are the primary causes of molten material migration along the sides. Additionally, splashing of molten metal occurs when the reaction force of the metal vapor exceeds the surface tension. The maximum errors in crater depth, diameter, and recast layer (RL) thickness between the simulation and experimental results under different parameters were 15.6%, 5.8%, and 10.4%, respectively. In addition, both the diameter, depth, and RL thickness of a single-discharge pit increased with higher peak current and pulse width, consistent with the NiTi-SMA surface morphology and RL behavior during continuous WEDM under various parameters. The grain refinement in the RL resulted in increased surface microhardness and residual stress. As RL thickness increased with higher pulse width and peak current, microhardness and residual stress also gradually increased, while the strain recovery rate progressively decreased. Increasing the pulse interval improved the performance of the NiTi-SMA.</p>