V85Ni15 (at%) alloy was proposed as a promising candidate for hydrogen separation membranes. To date, investigations of V85Ni15 alloy have concentrated on hydrogen permeation characteristics, and little work has been done on the microstructural development. In the present study, various fabrication and heat-treatment techniques were used to develop different microstructures which would then be tailored to achieve a desired candidate for acceptable mechanical stability while maintaining high hydrogen permeability. The arc-melted (AM) V85Ni15 alloy are supersaturated solid solution with dendritic segregation of Ni-solute atoms. Cold rolling (CR) followed by annealing at 1050 °C and 850 °C can produce a two-phase (V + σ) microstructure and a three-phase (V + σ + NiV3) microstructure, respectively. Very fine two-phase microstructure obtained at 1050 °C involves a simultaneous reaction of second-phase precipitation and V-matrix recrystallization. Sigma phase is formed via primary precipitation, while NiV3 phase is formed by peritectoidal reaction. When AMCR samples were homogenized at 1250 °C for 2 h and sequential heat-treated at 850 °C or 900 °C for 2 h, precipitation-strengthening microstructure is obtained: large grain structure of V-matrix with uniform distribution of second-phase particles produced by recrystallization and grain growth followed by precipitation process.