The friction characteristics of Al-Fe alloy powders are investigated in order to develop an eco-friendly friction material to replace Cu fiber, a constituent of brake-pad friction materials. Irregularly shaped Al-Fe alloy powders, prepared by gas atomization, are more uniformly dispersed than conventional Cu fiber on the brake pad matrix. The wear rate of the friction material using Al-8Fe alloy powder is lower than that of the Cu fiber material. The change in friction coefficient according to the friction lap times is 7.2% for the Cu fiber, but within 3.8% for the Al-Fe alloy material, which also shows excellent judder characteristics. The Al-Fe alloy powders are uniformly distributed in the brake pad matrix and oxide films of Al and Fe are homogeneously formed at the friction interface between the disc and pad, thus exhibiting excellent friction and lubrication characteristics. The brake pad containing Al-Fe powders avoids contamination by Cu dust, which is generated during braking, by replacing the Cu fiber while maintaining the friction and lubrication performance.