The effects of Fe addition in the range of 300–1250 ppm in cold worked stress-relieved Zr–2.5Nb pressure tube on oxidation and hydrogen pick up behavior have been studied after 415 °C steam autoclaving. Microstructure and micro-chemistry of second phase and precipitates were characterized using electron microscope. Addition of 800 ppm Fe in Zr–2.5Nb alloy led to better oxidation resistance. With further addition of Fe no significant improvement of oxidation resistance was observed but hydrogen-pickup was found to increase. Zr–Nb–Fe bearing precipitates were observed in Zr–2.5Nb alloy containing 800 ppm Fe. Further addition of Fe led to formation of Zr–Fe intermetallic. The chemical state of oxide has been determined by X-ray photo electron spectroscopy. Grazing Incidence X-ray Diffraction revealed that oxide in alloys with higher Fe, contained a higher fraction of tetragonal-Zirconia which is indicative of a protective oxide film and hence better oxidation resistance of the alloy.