An interplay between high degree of shear deformation and deformation-induced heating occurs during friction stir processing (FSP) of metals. In medium-to-low stacking fault energy Cu alloys, this can lead to a complex spatially heterogenous activation of dynamic recrystallization (DRX) and twinning mechanisms. Within the Cu-Nb system, the presence of Nb is further expected to influence the DRX mechanism of the Cu matrix. However, the microstructural changes induced by the co-deformation of Nb during FSP are still not well understood. Therefore, this study uses a combination of multimodal microstructural characterization, solution thermodynamics-based predictions, and computational crystal plasticity simulation to reveal the various microstructural evolution mechanisms that can occur during FSP of a Cu-4at.%Nb binary model alloy. The formation of softer DRX zones, and harder shear localization regions are revealed using electron backscatter diffraction, transmission electron microscopy, atom probe tomography, and crystal plasticity modeling.