NiCrAlY coating was prepared on a stainless steel substrate by an arc ion plating machine and the annealing experiments were carried out at different temperatures using a tube furnace. The effects of annealing temperatures on the morphology, structure, chemical composition and phase structure of the coating were characterized by SEM, EDS and XRD, respectively. The change of microstructure is discussed. Dynamic mechanical analyzer results determined the suitable annealing temperature for the best damping performance. The effect of annealing temperature on the microstructure and damping properties of NiCrAlY coating are also discussed. The relationship between annealing temperature and damping properties are explained by microstrcuture, grain size and phase structure.