Supersaturated Cu-3 at.% Ag alloy was rolled at liquid nitrogen temperature and then annealed at 623 K up to 120 min. The evolution of the microstructure as a function of annealing time was studied. In the initial stage of the heat-treatment a heterogeneous microstructure was developed where both the dislocation density and the solute Ag concentration in the Cu matrix varied considerably. In the regions where the initial Ag particles have a very small size and/or large Cu/Ag interface energy, dissolution occurred due to the Gibbs-Thomson effect while in other volumes the solute Ag concentration decreased to the equilibrium level. In the regions where the solute Ag concentration increased due to dissolution, a considerable fraction of dislocations formed during rolling was retained in the Cu matrix after annealing. In the volumes where the solute Ag content decreased due to precipitation, significant reduction in the dislocation density was observed. The evolution and the stability of this heterogeneous microstructure were investigated experimentally and discussed using model calculations.