One of the newest and most economical methods of grain refining on the surface is the ultrasonic nano-crystallization process. In this study, the properties and microstructure of austenitic stainless steel AISI316 were investigated before and after this new treatment. After preparation of specimens, the treated zone was recognized by using optical and scanning electron microscopes. To confirm the refinement of grains, grain sizes in less than 100 nano-meter scale were then observed in treated zone by using transmission electron microscope. XRD measurements were next performed for untreated and treated specimens, and besides the observation of martensite phase in the treated structure, the crystallite sizes and their dislocation density were also measured. Micro-hardness test showed an increase of about 40 percent on the surfaces of specimens after the application of this process. Roughness test indicated that the surface flatness of the treated specimens has improved by 15 percent with respect to the untreated one. Compressive residual stress at the surface was measured and compared before and after treatment. The results showed that about 530 Mpa residual stress of compressive type has been formed at the surface of specimens after treatment which decreases gradually from surface to the depth of 200 micron meters. Wear test results illustrated that mass loss percentage, wear rate and friction coefficient have decreased by about 46, 50 and 50 percent, respectively, after treatment. At the end these results were attributed to sever plastic deformation of the surface and formation of nano-crystalline structure at a certain depth of surface and a mechanism, responsible for the improvement of mechanical properties of AISI316 steel was proposed . Keywords: Ultrasonic Surface Nanocrystalization, Nanostructure, Severe plastic deformation, Surface treatment