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A new second nearest-neighbor modified embedded-atom model-based PtTi binary interatomic potential was developed by improving the pure Pt unary descriptions of the pre-existing interatomic potential. Specifically, the interatomic potential was developed focusing on the shape memory-associated phenomena and the properties of equiatomic PtTi, which has potential applications as a high-temperature shape memory alloy. The simulations using the developed interatomic potential reproduced the physical properties of the equiatomic PtTi and various intermetallic compound/alloy compositions and structures. Large-scale molecular dynamic simulations of single crystalline and nanocrystalline configurations were performed to examine the temperature- and stress-induced martensitic transformations. The results show good consistency with the experiments and demonstrate the reversible phase transformation of PtTi SMA between the cubic B2 austenite and the orthorhombic B19 martensite phases. In addition, the importance of anisotropy, constraint and the orientation of grains on the transformation temperature, mechanical response, and microstructure of SMA are presented.