Nickel aluminum bronze (NAB) is extensively utilized in engineering applications, particularly for the manufacturing of gears, valves, propellers, and various other components, owing to its superior mechanical properties, high wear resistance, and excellent corrosion resistance. In this study, NAB alloy was optimized through the addition of varying amounts of rare earth (RE) elements, and its microstructure, mechanical properties, and thermal fatigue behavior were systematically investigated. The results indicate that the addition of moderate RE enables the alloy to possess a refined microstructure and exhibit superior mechanical properties, which in turn significantly enhances its thermal fatigue resistance. Among the samples containing 0–0.25% RE, the sample with 0.16% RE exhibits the shortest crack length and demonstrates superior thermal fatigue resistance. Thermal fatigue mechanism analysis also demonstrates that the alloy with 0.16% RE exhibits the slowest crack propagation rate. Crack propagation and extension along grain boundaries constitute the primary mode of crack growth.