The microstructural development of a rapidly solidified Al–7Mg–1Zr powder alloy during consolidation via hot extrusion is reported. This non-heat-treatable alloy is a proposed candidate for the production of net shape extruded components, which require a combination of high strength, low density, and good damage tolerance. By employing a combination of X-ray diffraction (XRD), transmission electron microscopy (TEM), and differential scanning calorimetry a detailed understanding of the microstructural transformations that occur during consolidation has been achieved. Additionally, the above techniques have been employed to assess the effect of extrusion temperature on the final microstructure of the alloy. It is shown that rapid solidification techniques can retard the nucleation and growth of Zr containing intermetallics even at the relatively high concentrations found in the present alloy: however, segregation of the Mg component during solidification is found to be severe. A detailed analysis of the dissolution kinetics of the Mg bearing phase on heating shows that although the segregation is drastic, its refined nature permits the omission of a homogenisation treatment. This analysis also shows that for solidification at lower cooling rates homogenisation of the present alloy composition would be required. It is found that during consolidation the Zr rich solid solution decomposes to produce a very fine distribution of metastable ZrAl3 dispersoids. Examination using TEM reveals that these dispersoids are formed in a discontinuous manner during the hot deformation associated with the extrusion process. Employing quantitative XRD techniques the variation in quantity and size of these intermetallics with consolidation temperature is assessed and the optimum distribution is observed when the alloy is consolidated at 500°C.