Mixtures of Fe and Cu powders are cold-compacted and subsequently deformed with severe plastic deformation by high-pressure torsion, leading to bulk samples. The dilution of Fe in the Cu matrix is investigated with SQUID-magnetometry, whereas the magnetic properties change as a function of Fe-content from a frustrated regime to a thermal activated behaviour. The magnetic properties are correlated with the microstructure, investigated by synchrotron X-ray diffraction and atom probe tomography. Annealing of the as-deformed states leads to demixing and grain growth, with the coercivity as a function of annealing temperature obeying the random anisotropy model. The presented results show that high-pressure torsion is a technique capable to affect the microstructure even on atomic length scales.