Dynamic loading of the hat-shaped specimen of 2195-T6 aluminum lithium alloy was carried out with a split Hopkinson pressure bar at ambient temperature. The formation and evolution mechanisms of adiabatic shear band (ASB) in this alloy were investigated and then microstructure was further observed. The microstructure within ASB in 2195 aluminum alloy was characterized by means of optical microscopy and transmission electron microscopy. The width of ASB was about 20–30 um. Nano-grains (50–100 nm) were observed in the middle of shear zone. Experimental results show that the diffusive transformation took place within ASB during high strain rate deformation, namely the precipitates dissolving in the matrix in the process (within about 71 µs). Based on thermodynamics and kinetics analyses, dissolution of precipitates was firstly investigated during adiabatic shearing deformation, and a dissolution model was suggested in the present work. The diffusive transformation and the microstructure evolution within ASB in 2195 alloy were explained.