This study examines the effect of fine recycled concrete aggregate (FRCA) on the interfacial transition zone and porosity of mortars. The literature on FRCA’s effects is inconsistent, often indicating adverse impacts on workability, compressive strength, drying shrinkage, and transport properties, among others, and other times reporting the opposite. Such inconsistencies may stem from the combinations of effects of the high porosity of FRCA and the additional water sometimes added to compensate for the FRCA absorption. Attached cement paste causes a higher porosity of fine recycled concrete aggregate (FRCA) compared to fine natural aggregates. This brings more complexity to the mix design due to the difficulties in accurately determining the water absorption ratio of FRCA, often leading to inaccurate corrections of water. Overestimation of this additional water increases the porosity of the cementitious matrix. Thus, the overall effect of the inclusion of FRCA depends on which effect is more dominant. The effect of the water uptake by FRCA was analyzed by testing mixes containing different percentages of FRCA in air-dry state. A reference mortar with 45% by volume (relative to the total amount of sand) of manufactured sand and w/c ratio of 0.40 was compared with mortars with 15, 30 and 45% by volume of FRCA replacing the manufactured sand. No compensation of water due to the FRCA absorption capacity was made during the production of mortars. Measurements in fresh and hardened state were conducted, with tests for flow (0 and 30 min after mixing), bleeding, density, water absorption capacity, porosity, and compressive strength. Moreover, microstructural analyses by SEM images of thin polished samples revealed the effects of FRCA inclusion on the overall porosity and alterations of the interfacial transition zone (ITZ). Notable changes in the ITZ linked with the presence of FRCA and the water transfer between the fresh matrix and FRCA particles. The water absorption capacity of FRCA distinctively influenced mortar performance, depending on the property considered.