Ultrafine-grained aluminum alloys offer interesting multifunctional properties with a combination of high strength, low electrical resistivity, and low density. However, due to thermally induced grain coarsening, they typically suffer from an intrinsic poor thermal stability. To overcome this drawback, an Al-2%Fe alloy has been selected because of the low solubility of Fe in Al and their highly positive enthalpy of mixing leading to the formation of stable intermetallic particles. The two-phase alloy has been processed by severe plastic deformation to achieve simultaneously submicrometer Al grains and a uniform distribution of nanoscaled intermetallic particles. The influence of the level of deformation on the microstructure has been investigated thanks to transmission electron microscopy and atom probe tomography and it is shown that for the highest strain a partial dissolution of the metastable Al6Fe particle occurred leading to the formation of a Fe super saturated solid solution. The thermal stability, and especially the precipitation of particles from the ultrafine-grained solid solution and the way they pin grain boundaries has been investigated both from static annealing and in-situ transmission electron microscopy experiments. The correlation between microstructural features and microhardness has been established to identify the various strengthening contributions. Finally, it is 2 shown that ultrafine grained high purity Al with less than 0.01 at. % Fe in solid solution could preserve a grain size only 300nm after 1h at 250°C.