Abstract: Molecular dynamics simulation was performed to study the nanoindentation process of a hard diamond tip into an Fe substrate. The atomic configuration of the substrate, the load-displacement curve, and the emission and variation of dislocations during loading and unloading processes were investigated. The plastic deformation mechanism of the substrate was discussed. It is found that during the loading process, the dislocation occurs when the indentation depth is about 0.69 nm; with the indentation depth increasing, the dislocation grows up into a dislocation loop and the plastic deformation of the substrate becomes more severe. During the unloading process, with the decrease of indentation depth, the number of dislocation loops decreases continuously; when the indenter returns to its starting position, there are still a small amount of dislocation loops in the center of the substrate, and this is the main reason for the permanent plastic deformation of the substrate.