Microstructural developments in deformed Zircaloy 2 were studied using techniques ranging from positron annihilation spectroscopy (PAS), X-ray diffraction (XRD), transmission electron microscopy (t_m) and electron backscattered diffraction (EBSD). Grain fragmentation during plastic deformation, which is expected to involve dislocation realignment and recovery, showed a clear correlation with drop in mean PAS lifetime (t_m). An increased t_m, on the other hand, was associated with annihilation of deformation twins. The deformation twins, {1 0 1over bar  2}á1over bar 0 1 1ñ type tensile twins, were identified from axis-angle relationship: 94.8° á1 over bar 2 1 over bar 0ñ. A deviation of more than 5° from the exact twin orientation relationship was considered as annihilation. Such annihilation, caused by developments of in-grain misorientations, is expected to involve accommodation through interfacial dislocations. Presence of such dislocations, and associated point defects, offers an explanation for the observed increase in t_m.