Two competing mechanisms that compensate the transformation strains of the martensite are observed by transmission electron microscopy studies of nanocrystalline NiTi alloys. A single variant of compound twinned martensite forms below a critical grain size of about 100nm. In larger grains, a herringbone morphology of two different twinned variants of the martensite is observed. Calculations show that homogeneous transformation strains are reduced by the self-accommodating arrangement of different martensitic variants. This takes place at the expense of the formation of additional interfaces causing local strain concentrations. It is concluded that the size dependence of the martensitic morphology is caused by a different scaling behavior of the homogeneous and interfacial strain energies.