This paper investigates the improvement of the microstructure and tensile properties of Al-Si-Fe alloys by adding small amounts of Er and Al-Ti-C. The refinement and strengthening mechanisms of this modified alloy are also investigated. The experimental results show that the addition of Al-Ti-C in the Al-Si-Fe alloy can induce multiple refining effects, including the refinement of α-Al grains, SDAS, and eutectic Si particles. When the compound addition ratio is close to 1:2, with the addition of 0.20 % Al-Ti-C and 0.40 % Er, the grain size, SDAS, and eutectic silicon particle area decrease, resulting in the best refinement of the alloy structure. Due to the microstructure refinement, the yield strength (YS), ultimate tensile strength (UTS), and elongation (EL %) are improved, leading to the best strengthening of the mechanical properties. In the eutectic Si phase, small Al3Er particles formed by Er and Al play an important role in refining eutectic silicon and increasing the strength of the alloy. The rare earth element Er can form small Al3Er particles in the matrix and generate Al3Er and AlSiEr phases, which can play an anchoring role in the alloy and improve the Al-Si-Fe alloy strength.