Friction stir blind riveting (FSBR) is a novel and highly efficient joining technique for lightweight metal materials, such as aluminum alloys. The FSBR process induced large gradients of plastic deformation near the rivet hole surface and resulted in a distinctive gradient microstructure in this domain. In this study, microstructural analysis is conducted to analyze the final microstructure after the FSBR process. Dynamic recrystallization (DRX) is determined as the dominant microstructure evolution mechanism due to the significant heat generation during the process. To better understand the FSBR process, a two-dimensional Cellular Automaton (CA) model is developed to simulate the microstructure evolution near the rivet hole surface by considering the FSBR process loading condition. To model the significant microstructure change near the rivet hole surface, spatial distributed temporal thermal and mechanical loading conditions are applied to simulate the effect of the large gradient plastic deformation near the hole surface. The distribution grain topography and recrystallization fraction are obtained through the simulations, which agree well with the experimental data. This study presents a reliable numerical approach to model and simulate microstructure evolution governed by DRX under the large plastic deformation gradient in FSBR.