Microstructure images of metallic materials play a significant role in industrial applications. To address image degradation problem of metallic materials, a novel image restoration technique based on K-means singular value decomposition (KSVD) and smoothing penalty sparse representation (SPSR) algorithm is proposed in this work, the microstructure images of aluminum alloy 7075 (AA7075) material are used as examples. To begin with, to reflect the detail structure characteristics of the damaged image, the KSVD dictionary is introduced to substitute the traditional sparse transform basis (TSTB) for sparse representation. Then, due to the image restoration, modeling belongs to a highly underdetermined equation, and traditional sparse reconstruction methods may cause instability and obvious artifacts in the reconstructed images, especially reconstructed image with many smooth regions and the noise level is strong, thus the SPSR (here, q = 0.5) algorithm is designed to reconstruct the damaged image. The results of simulation and two practical cases demonstrate that the proposed method has superior performance compared with some state-of-the-art methods in terms of restoration performance factors and visual quality. Meanwhile, the grain size parameters and grain boundaries of microstructure image are discussed before and after they are restored by proposed method.