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Phase transitions in nickel-titanium shape-memory alloys are investigated by means of atomistic simulations. A second nearest-neighbor modified embedded-atom method interatomic potential for the binary nickel-titanium system is determined by improving the unary descriptions of pure nickel and pure titanium, especially regarding the physical properties at finite temperatures. The resulting potential reproduces accurately the hexagonal-close-packed to body-centered-cubic phase transition in Ti and the martensitic B2−B19′ transformation in equiatomic NiTi. Subsequent large-scale molecular-dynamics simulations validate that the developed potential can be successfully applied for studies on temperature- and stress-induced martensitic phase transitions related to core applications of shape-memory alloys. A simulation of the temperature-induced phase transition provides insights into the effect of sizes and constraints on the formation of nanotwinned martensite structures with multiple domains. A simulation of the stress-induced phase transition of a nanosized pillar indicates a full recovery of the initial structure after the loading and unloading processes, illustrating a superelastic behavior of the target system.