Microstructural evolution during equal channel angular extrusion (ECAE) was investigated in a coarse-grained dilute aluminum alloy, Al-3%Cu, at a temperature of 250oC. Scanning electron microscopy (SEM) with electron back scattering diffraction (EBSD) and optical metallography (OM) was used to reveal the structural changes in the alloy deformed up to a strain of ε=12. The microstructural evolution at initial and moderate stages of deformation is characterized by the formation of low angle boundaries and deformation bands with moderate misorientations in grain interiors. With further deformation the number and the misorientation of the deformation bands increase, finally leading to the subdivision of original grains by these bands and then the development of fine grains with an average size of about 6 μm at ε=12. The evolution of deformation bands in initial grain interiors and their role on new grain formation are discussed in detail.