The microstructure of gas-atomised Al–12 wt.% Sn–1 wt.% Cu alloy powder has been investigated using scanning and transmission electron microscopy. Powder particles above approximately 8 μm in diameter exhibited a cellular–dendritic solidification morphology comprising α-Al dendrites and interdendritic Sn. In smaller powder particles, with diameters less than approximately 8 μm, the microstructure comprised an α-Al matrix with a dispersion of sub-micron Sn particles. The size of the dispersed Sn phase decreased with decreasing powder size (i.e. increased cooling rate). The formation of this dispersed phase microstructure is explained by the existence of a metastable liquid-phase miscibility gap in the system such that the reaction L → L 1 + L 2 occurred prior to the onset of solidification in particles below 8 μm in size. A heat transfer analysis was used to estimate the undercooling for the nucleation of α-Al in droplets cooled at different rates. The nucleation undercooling predicted for an 8 μm diameter droplet was 260 K and this represents a critical value which must be exceeded to enter the immiscibility region. The above value is in reasonable agreement with the temperature of the metastable immiscibility boundary, calculated from thermodynamic data, which occurs at an undercooling of approximately 280 K for Al–12 wt.% Sn.