The effect of adding Ag up to 1 mass% on the microstructural and mechanical properties of Sn–Cu eutectic solder alloy was examined. Without Ag, primary β–Sn grains are surrounded by the eutectic network band of Cu₆Sn₅ needle precipitates/β–Sn. With increasing Ag content, the primary β–Sn grain size and the eutectic network size become finer. In the eutectic band fine Ag₃Sn particles appear in addition to Cu₆Sn₅ precipitates. The DSC experiment revealed the presence of four endothermic reactions on heating for Sn–Cu–Ag alloys; the two peaks near 217°C correspond to the Sn–Cu–Ag ternary eutectic melting reaction and those at 223–225°C/224–226°C are for Sn–Cu binary melting. The 0.2% proof stress and tensile strength decrease with the addition of 0.1 mass%Ag and then gradually increase up to 1 mass%Ag. Even with 1% Ag, they are less than the values for a Sn–0.7Cu binary alloy. In contrast, elongation increases with increasing Ag content up to 1%. Thus, the addition of Ag to Sn–0.7Cu alloy can effectively improve its ductility. The strain rate dependence of 0.2% proof stress of Sn–0.7Cu–0.5Ag is similar to that of Sn–Ag eutectic alloy but is different from that of Sn–Cu eutectic alloy. A small amount of added Ag results in a change of the deformation mechanism of Sn–Cu alloy.