Dilution rate is one of most important factors influencing the microstructure and performance of the laser cladding layer. In order to obtain a reasonable dilution rate in the laser cladding layer of Inconel 625 alloy, the laser cladding layers with different Fe content were prepared on the surface of 20# steel by the laser cladding technique. The influence of Fe content on the microstructure and performance of Inconel 625 alloy cladding layer was investigated. The results indicate that with the increase in Fe content in the alloy, the grain size of the cladding layer becomes coarser, the grain orientation difference increases first and then decreases, and the grain boundary angle decreases first and then increases. The hardness, high temperature wear resistance, and high temperature corrosion resistance gradually decreased. It is concluded that the dilution rate of Fe in laser cladding Inconel 625 alloy should be under 5 wt.%.