In order to create a cost-effective Zr alloy with superior overall characteristics, Zr-xFe (x = 0, 2, 4, 6, 8, 10 at.%) binary alloys were prepared by a vacuum arc furnace system. The microstructure of these alloys was examined utilizing various techniques such as optical microscope, X-ray diffractometer, scanning electron microscopy, and transmission electron microscopy. The results showed that the addition of Fe effectively refined α-Zr slats, and the Zr3Fe compound phase was dispersed throughout the alloy. However, the composition line of the alloying elements in the phase diagram intersected with the Zr2Fe and β-Zr eutectic lines when the Fe content exceeded 6 at.%. Zr–Fe alloys were transformed from monocrystalline-eutectoid to eutectic-eutectoid reactions. The Zr3Fe compound phase accumulated inside the grain and at the grain boundary as a result of the eutectic reaction, which stabilized the microstructure of the Zr–Fe alloys. This seriously affected the mechanical and corrosion properties of the alloys. The mechanical and corrosion properties of the alloys were assessed by universal testing machine, dynamic microhardness tester, Vickers hardness tester, and electrochemical workstation. The mechanical and corrosion properties of Zr–2Fe were excellent due to the coupling effect of Zr3Fe and grain refinement. The surface of the Zr–Fe alloy was analyzed by X-ray photoelectron spectroscopy, revealing the presence of passivation film components ZrO2 and Fe2O3.