Influences of induction heating continuous annealing (IHCA) on the microstructure of both copper sheath and aluminum core, and intermetallic compound at the Cu/Al interface of cold-drawn copper-clad aluminum wire were investigated, compared with the traditional isothermal annealing in furnace (TIA). The results showed that recovery of both the copper sheath and aluminum core happened when the temperature of IHCA was 250 ℃. Recrystallization began to occur in the copper sheath at 300 ℃ and in the aluminum core at 330 ℃, respectively. Complete recrystallization of both the copper sheath and aluminum core took place at 430 ℃, whose average grain size were 6.0 and 7.3 μm, respectively. An intermetallic compound CuAl₂ discontinuously formed at the interface at 360 ℃, and continuous CuAl₂ layer formed at 390 ℃. Both CuAl₂ layer and Cu₉Al₄ layer formed at the interface at 430 ℃, with average thickness of 0.52 and 0.48 μm, respectively. With further raising the temperature, the grains of both copper sheath and aluminum core grew, and the thickness of the intermetallic compound layer increased slightly. The appropriate IHCA temperature of the cold-drawn copper-clad aluminum wire was 430 ℃. Compared with TIA, IHCA was able to not only refine recrystallized grain of both copper sheath and aluminum core remarkably, but also reduce the thickness of the interfacial intermetallic compound layer in the copper-clad aluminum wire.