The dynamic properties of an intercritically annealed 0.2C5Mn steel with ultrafine-grained austenite-ferrite duplex structure were studied under dynamic shear loading. The formation and evolution mechanisms of adiabatic shear band in this steel were then investigated using interrupted experiments at five different shear displacements and the subsequent microstructure observations. The dynamic shear plastic deformation of the 0.2C5Mn steel was observed to have three stages: the strong linear hardening stage followed by the plateau stage, and then the strain softening stage associated with the evolution of adiabatic shear band. High impact shear toughness was found in this 0.2C5Mn steel, which is due to the following two aspects: the strong linear strain hardening by martensite transformation at the first stage, and the suppressing for the formation of shear band by the continuous deformation in different phases through the proper stress and strain partitioning at the plateau stage. The evolution of adiabatic shear band was found to be a two-stage process, namely an initiation stage followed by a thickening stage. The shear band consists of two regions at the thickening stage: a core region and two transition layers. When the adjoining matrix is localized into the transition layers, the grains are refined along with increasing fraction of austenite phase by inverse transformation. However, when the transition layers are transformed into the core region, the fraction of austenite phase is decreased and almost disappeared due to martensite transformation again. These interesting observations in the core region and the transition layers should be attributed to the competitions of the microstructure evolutions associated with the non-uniformly distributed shear deformation and the inhomogeneous adiabatic temperature rise in the different region of shear band. The 0.2C5Mn TRIP steel reported here can be considered as an excellent candidate for energy absorbers in the automotive industry.