A model of pseudoelasticity in shape memory alloys is developed within the incremental energy minimization framework. Three constitutive functions are involved: the Helmholtz free energy and rate-independent dissipation that enter incrementally the minimized energy function, and the constraint function that defines the limit transformation strains. The proposed implementation is based on a unified augmented Lagrangian treatment of both the constitutive constraints and nonsmooth dissipation function. A methodology for easy reformulation of the model from the small-strain to finite-deformation regime is presented. Finite element computations demonstrate robustness of the finite-strain version of the model and illustrate the effects of tension–compression asymmetry and transversal isotropy of the surface of limit transformation strains. Copyright © 2012 John Wiley & Sons, Ltd.