Given limited resources, it is necessary to increase the recycling of wasted aluminum alloy products. Due to the increase in Fe content during recycling, the formation of needle-, lath- and flake-shaped Fe-rich intermetallics reduces the mechanical properties of alloys. In this work, the effects of Cr addition on the microstructural evolution and mechanical properties of as-cast and rheo-extruded Al–1.5Fe (wt%) alloys were investigated. The results indicated that with increasing the Cr content from 0 wt% to 1.2 wt%, the average size of α-Al grains and Al13Fe4 phases first decreased and then increased. When the Cr content was 0.4 wt%, the refined microstructure was obtained; the optimized ultimate tensile strength, yield strength, and elongation of the as-cast alloy were 103.5 MPa, 60.2 MPa, and 36.2%, respectively. In addition, in the as-cast Al–1.5Fe–0.4Cr (wt%) alloy, Cr adsorption on the surface of Al13Fe4 phases was found, which caused the growth inhibition for Al13Fe4 phases. When the Cr content was larger than 0.8 wt%, the formation of coarse Al–Fe–Cr ternary phases resulted in the deterioration of mechanical properties. In order to further tailor the Al13Fe4 phases, the continuous rheo-extrusion of Al–1.5Fe(–0.4Cr) (wt%) alloy was performed. The rheo-extruded Al–1.5Fe–0.4Cr (wt%) alloy exhibited a superior combination of strength and ductility. The strengthening mechanisms induced by Cr addition were discussed. Grain boundary strengthening and dislocation strengthening were responsible for the enhancement in yield strength of the rheo-extruded alloy.