This study investigated NiTi powder sintering behaviour from elemental powder mixtures of Ni/Ti and Ni/TiH₂ using in situ neutron diffraction and in situ scanning electron microscopy. The sintered porous alloys have open porosities ranging from 2.7% to 36.0%. In comparison to the Ni/Ti compact, dehydrogenation occurring in the Ni/TiH₂ compact leads to less densification yet higher chemical homogenization only after high-temperature sintering. For the first time, direct evidence of the eutectoid phase transformation of NiTi at 620 °C is reported by in situ neutron diffraction. A comparative study of cyclic stress–strain behaviours of the porous NiTi alloys made from Ni/Ti and Ni/TiH₂ compacts indicate that the samples sintered from the Ni/TiH₂ compact exhibited a much higher porosity, larger pore size, lower fracture strength, lower close-to-overall porosity ratio and lower Young’s modulus. Instead of enhanced densification by the use of TiH₂ as reported in the literature, this study shows an adverse effect of TiH₂ on powder densification in NiTi.