Turbocharger centrifugal compressors are equipped with a “ported shroud” to reduce flow instabilities at low mass flow rates. This passive stability control device using flow recirculation has been demonstrated to extend the surge margin of a compressor without substantially sacrificing performance. However, the actual working mechanisms of the system are not well understood. In this paper, the relationship between inlet flow recirculation and instability control is studied using stereoscopic particle image velocimetry (PIV) in conjunction with dynamic pressure transducers at the inlet of the turbocharger compressor with and without ported shroud. Both stable and unstable operational points are analyzed using phase-locked PIV measurements during surge. Detailed description of unstable flow in the centrifugal compressor is presented by reconstructing the complex flow structure evolution in the compressor inlet during surge. Rather than one-dimensional, the surge flow is characterized by a three-dimensional structure of both entering and exiting swirling flows, alternating in magnitude during a self-excited pressure cycle. The correlation between pressure and velocity measurements shows that the development of compressor unsteadiness is concurrent with swirling reversed flow at the impeller tip. The impact of the ported shroud on the inlet velocity flowfield is evidenced by the presence of localized flow recirculation. Stability improvement due to the ported shroud is thus a result of removing swirling backflow from the impeller inducer tip and recirculating it into the impeller inlet to increase the near shroud inlet blade loading and the incidence angle.