Residual stresses, local mechanical properties, and microstructural evolution in terms of grain structures and precipitation distribution have been studied in friction stir welding of AA2017 in T4 and T6 conditions. Microstructural studies including optical and electron microscopy were made to characterize the developed microstructures in different zones of the weldment. Furthermore, X-ray diffraction technique and digital image correlation technique were also utilized to assess residual stress and mechanical properties of the welded alloy. The results show that coarsening of semi-coherent plate-shaped precipitates and formation of incoherent spherical-shaped particles occur in heat affected and thermo-mechanical affected zones while a non-uniform grain size distribution is formed in the stir zone because of asymmetric distribution of temperature. Moreover, the developed residual stresses in the welded samples significantly enhance the effect of subsequent natural aging.