Zr–2.5Nb Alloy is used in a cold-worked and stress-relieved (CWSR) condition as pressure tubes in Indian pressurized heavy water reactors (IPHWR). The life-limiting factor for pressure tubes is in-reactor dimensional changes caused by irradiation growth and creep resulting in diametral expansion and axial elongation. Recent work has indicated that heat-treated Zr–2.5Nb alloy may exhibit lower in-reactor dimensional changes vis-à-vis CWSR pressure tubes. The advanced heavy water reactor (AHWR) specification demands more stringent operating condition for the pressure tubes and it was decided to develop a new fabrication route for heat-treated Zr–2.5Nb alloy for possible application as pressure tubes in AHWR. In this work, the microstructural characterization and tensile properties evaluation was carried out using samples obtained from various stage of fabrication of water-quenched and aged Zr–2.5Nb alloy following a route similar to Fugen pressure tubes is discussed. The microstructure was characterized using optical and transmission electron microscopy. The chemical composition, morphology, and location of the precipitates formed during aging were studied using thin-foil electron microscopy and carbon extraction replica. Samples with its axes parallel to longitudinal (L) or transverse (T) direction of rolled plate were machined from quenched, cold-rolled, and aged material and were tested in tension at 25°C and 300°C. The microstructure and the tensile strength of the alloy processed in the present investigation were comparable to that of heat-treated pressure tubes used in Reaktor Bolshoy Moshchnosti Kanalniy (RBMK) and Fugen reactors.