Abstract: A key challenge in Al recycling involves controlling the Fe content and resultant Fe-rich intermetallic compound (IMC), as these incur a detrimental effect on ductility. This study evaluated the critical Fe content (0.17wt% for β-Al₅FeSi formation in Al–7Si–0.3Mg alloys) and achievable Fe tolerance (the maximum Fe content focusing on the 0.2Fe–0.02Sr alloy) required for an optimized eutectic Si morphology. The individual and combined additions of Mn (Fe-rich IMCs refinement element) and Nb (α-Al refinement element) in recycled alloys without abrupt elongation (EL) deterioration were distinguished using thermodynamic calculation and experimental determination. The contribution of alloying to the maximum EL (approximately 100%) of Al–7Si–0.3Mg–0.2Fe alloy at a cooling rate of 2°C/s was determined by comparing the effects of individual and overall modifications, targeting Fe-rich IMCs, α-Al, and eutectic Si, on mechanical properties. The same microstructural refinement effect achieved by the overall alloying modification was obtained through the addition of Sr and accelerated cooling (from 2 to 6°C/s). A 317% improvement in EL at 0.2wt% Fe was achieved through this synergistic refinement, demonstrating its superior effectiveness in enhancing ductility. Furthermore, microstructure analysis revealed that the secondary dendrite arm spacing was the most critical factor influencing Fe tolerance in this alloy. By contrast, the refinement of the Fe-rich IMCs, although beneficial, did not contribute significantly to improving Fe tolerance. This strategy enables the utilization of high-Fe Al scrap to advance the sustainability of the Al recycling industry.