Observations of the structure of commercial zircaloy-2 have been made in the microscope showing that the high temperature beta phase is transformed isothermally at lower temperatures into alpha plus secondary precipitate. The alpha occurs mainly as Widmanstaetten plates developed by a shear mechanism. The secondary precipitate is formed from the beta - alpha structure at the phase boundary between these phases. This precipitation of particles of secondary phase occurs on account of a eutectoid reaction, alpha also being formed. A time-temperature transformation diagram has been constructed from the observations.