Thermally induced shape memory is an attractive feature of certain functional materials. Among the shape memory polymers, shape memory elastomers (SMEs) especially those with biodegradability have great potential in the biomedical field. In this study, we prepared waterborne biodegradable polyurethane SME based on poly(ε-caprolactone) (PCL) oligodiol and poly(l-lactic acid) (PLLA) oligodiol as the mixed soft segments. The ratio of the soft segments in polyurethanes was optimized for shape memory behavior. The thermally induced shape memory mechanism of the series of polyurethanes was clarified using differential scanning calorimeter (DSC), X-ray diffraction (XRD), and small-angle X-ray scattering (SAXS). In particular, the in situ SAXS measurements combined with shape deformation processes were employed to examine the stretch-induced (oriented) crystalline structure of the polyurethanes and to elucidate the unique mechanism for shape memory properties. The polyurethane with optimized PLLA crystalline segments showed a diamond-shape two-dimensional SAXS pattern after being stretched, which gave rise to better shape fixing and shape recovery. The shape memory behavior was further tested in 37 °C water. The biodegradable polyurethane comprising 38 wt % PCL segments and 25 wt % PLLA segments and synthesized at a relatively lower temperature by the waterborne procedure showed ∼100% shape recovery in 37 °C water. The biodegradable polyurethane SME also demonstrated good endothelial cell viability as well as low platelet adhesion/activation. We conclude that the waterborne biodegradable polyurethane SME possesses a unique thermally induced shape memory mechanism and may have potential applications in making shape memory biodegradable stents or scaffolds.