The T1 phase is the highest density and most prominent strengthening effect precipitate in Al–Cu–Li alloys, and it undergoes a complex dynamic evolution during hot deformation, which has significant effects on microstructure development and hot working. This study comprehensively characterizes and analyzes the dynamic evolution of the T1 phase at 400 °C/0.01 s−1 and its influence on continuous dynamic recrystallization (CDRX). The results indicate that the T1 phase successively undergoes coarsening, fracture, dissolution, dynamic precipitation, recoarsening, and spheroidization during deformation. A shear-coupled diffusion mechanism is proposed to explain the ultrafast coarsening rate of the T1 phase in early deformation. During the dynamic precipitation of the T1 phase, an anomalous inhomogeneous size and spatial distribution of the T1 phase are observed, and a high number density of fine T1 phases form in the matrix (with a denser, thinner and shorter size at the dislocation wall). The dynamically precipitated T1 phase is affected by the octahedral slip system during the coarsening process and exhibits a selective ripening phenomenon. The T1 phase formed by aging increases the inhomogeneity of the deformation and induces many substructures intragranularly, decreasing the percentage of CDRX grains but increasing the CDRX potential. Conversely, the dynamically precipitated T1 phase and its evolution accelerate CDRX development by promoting the transformation of LAGBs to HAGBs. In addition, the effects of dynamically evolving precipitates on the dislocations and formation modes of LAGBs at various deformation stages are elucidated. The results can provide valuable insights into the regulation of microstructure, and the development of high-performance Al–Cu–Li alloys, and also offer a theoretical and experimental basis for microstructure modeling.