Extensive molecular dynamics (MD) simulations have been performed in a B2-NiAl nanowire using an embedded atom method (EAM) potential. We show a stress induced -centered-tetragonal (BCT) phase transformation and a novel temperature and cross-section dependent pseudo-elastic/pseudo-plastic recovery from such an unstable BCT phase with a recoverable strain of ~30% as compared to 5–8% in polycrystalline materials. Such a temperature and cross-section dependent pseudo-elastic/pseudo-plastic strain recovery can be useful in various interesting applications of shape memory and strain sensing in nanoscale devices. Effects of size, temperature, and strain rate on the structural and mechanical properties have also been analyzed in detail. For a given size of the nanowire the yield stress of both the B2 and the BCT phases is found to decrease with increasing temperature, whereas for a given temperature and strain rate the yield stress of both the B2 and the BCT phase is found to increase with increase in the cross-sectional dimensions of the nanowire. A constant elastic modulus of ~80 GPa of the B2 phase is observed in the temperature range of 200–500 K for nanowires of cross-sectional dimensions in the range of 17.22–28.712 Å, whereas the elastic modulus of the BCT phase shows a decreasing trend with an increase in the temperature.