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Segregation and chemical inhomogeneity are well-known problems in powder metallurgy and are also an issue for new applications of powder mixtures, for example as starting materials for severe plastic deformation. In this study, Cu-coated Fe powder was prepared via immersion deposition, inductively hot-pressed and subsequently deformed using high-pressure torsion. The homogeneity of the pressed material was found to be much better than that of powder mixtures that were prepared for comparison. During severe plastic deformation, higher hardness was observed for the coated powder as compared to powder mixtures even after low strains. In the saturation state, the coated powder was found to result in a hardness of about 600 HV, which is significantly harder than for the powder mixtures. This is attributed to the greater amount of impurities introduced by the coating process. It is shown that coated powders are promising starting materials for severe plastic deformation in order to reduce the amount of strain necessary to reach the saturation state and to obtain high strength and more homogeneous mechanical alloying.