Mechanical alloying using high-energy ball mill and subsequent spark plasma sintering (SPS) process was applied to understand mechanical alloying processing of Al-Fe alloy system. The thermal stability of mechanically alloyed Al-Fe alloy was intended to be enhanced by SPS process. Various analytical techniques including particle size analysis, density measurement, micro-Vickers hardness test, SEM, TEM, and X-ray diffractometry were adopted to find optimum processing conditions for mechanical alloying and subsequent SPS and to estimate thermal stability of the prepared alloy. It was found from the treatment of mechanically alloyed Al-8wt.%Fe powder mixture that needle-shaped $Al_3Fe$ precipitates was formed in the Al-Fe matrix, and the alloy compact showed enhanced densification and reached its full density with little loss of its fine microstructure. After heat treatment at $500^{circC}$, it was also shown that the thermal stability of Al-8wt.%Fe alloy fabricated in the present study was enhanced, which was due to its fine microstructure developed by fast densification of SPS.