A tough and heat resisting aluminum alloy comprising aluminum, a transition metal element and a rare earth element, and having a modulated structure which comprises an aluminum matrix and an intermetallic compound precipitated to form a network in the aluminum matrix. Also disclosed in a process for producing the aluminum alloy which comprises the steps of: rapid quenching and solidifying a liquid aluminum alloy at a quenching rate of 102 to 105 K/sec to obtain an aluminum-based supersaturated solid solution; and heat treating the quenched aluminum-based supersaturated solid solution at a heat treating temperature of 473 K or higher, the temperature increasing rate to the heat treating temperature being 1.5 K/sec or higher.