(1) Introduction: Iron deficiency (ID) contributes to impaired functional performance and reduced quality of life in patients with chronic illnesses. The role of ID in stroke is unclear. The aim of this prospective study was to evaluate the prevalence of ID and to evaluate its association with long-term functional outcome in patients with ischemic stroke. (2) Patients and Methods: 140 patients (age 69 ± 13 years, BMI 27.7 ± 4.6 kg/m², mean ± SD) admitted to a university hospital stroke Unit, with acute ischemic stroke of the middle cerebral artery were consecutively recruited to this observational study. Study examinations were completed after admission (3 ± 2 days after acute stroke) and at one-year follow up (N = 64, 382 ± 27 days after stroke). Neurological status was evaluated according to the National Institute of Health Stroke Scale (NIHSS) and the modified Rankin scale (mRS). Muscle isometric strength of the non-affected limb was assessed by the maximum handgrip test and knee extension leg test. ID was diagnosed with serum ferritin levels ≤ 100 µg/L (ID Type I) or 100–300 µg/L if transferrin saturation (TSAT) < 20% (ID Type II). (3) Results: The prevalence of ID in acute stroke patients was 48% (N = 67), with about two-thirds of patients (N = 45) displaying ID Type I and one-third (N = 22) Type II. Handgrip strength (HGS) and quadriceps muscle strength were reduced in patients with ID compared to patients without ID at baseline (HGS: 26.5 ± 10.4 vs. 33.8 ± 13.2 kg, p < 0.001 and quadriceps: 332 ± 130 vs. 391 ± 143 N, p = 0.06). One year after stroke, prevalence of ID increased to 77% (p = 0.001). While an improvement of HGS was observed in patients with normal iron status, patients with ID had no improvement in HGS difference (4.6 ± 8.3 vs. −0.7 ± 6.5 kg, p < 0.05). Patients with ID remained with lower HGS compared to patients with normal iron status (28.2 ± 12.5 vs. 44.0 ± 8.6 kg, p < 0.0001). (4) Conclusions: Prevalence of ID was high in patients after acute stroke and further increased one year after stroke. ID was associated with lower muscle strength in acute stroke patients. In patients with ID, skeletal muscle strength did not improve one year after stroke.