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In this study, oxide dispersion-strengthened Cu alloy with a Y2O3 content of 1 wt.% was fabricated through citric acid sol-gel synthesis and spark plasma sintering (SPS). The citric acid sol-gel method provides molecular mixing for the preparation of precursor powders, which produces nanoscale and uniformly distributed Y2O3 particles in an ultrafine-grained Cu matrix. The effects of nanoscale Y2O3 particles on the microstructure, mechanical properties and thermal conductivity of the Cu-1wt.%Y2O3 alloy were investigated. The average grain size of the Cu-1wt.%Y2O3 alloy is 0.42 μm, while the average particle size of Y2O3 is 16.4 nm. The unique microstructure provides excellent mechanical properties with a tensile strength of 572 MPa and a total elongation of 6.4%. After annealing at 800 °C for 1 h, the strength of the alloy does not decrease obviously, showing excellent thermal stability. The thermal conductivity of Cu-1wt.%Y2O3 alloy is about 308 Wm−1K−1 at room temperature and it decreases with increasing temperature. The refined grain size, high strength and excellent thermal stability of Cu-1wt.%Y2O3 alloys can be ascribed to the pinning effects of nanoscale Y2O3 particles dispersed in the Cu matrix. The Cu-Y2O3 alloys with high strength and high thermal conductivity have potential applications in high thermal load components of fusion reactors.