A scheme, based on the linear muffin‐tin orbital (LMTO) formalism in the atomic sphere approximation (ASA) and on the recursion method, has been developed which allows first‐principles, spin‐polarized, self‐consistent, density‐functional calculations to be performed in real space. The scheme has been tested with success in ferromagnetic FeNi3and in antiferromagnetic FeMn. Here a substitutional impurity of Fe in a Cu host is considered. The first‐principles LMTO‐ASA real‐space approach is used to obtain the electronic structure and local magnetic moments of atoms in a region including four shells of Cu atoms around the impurity. The results for the magnetic moment and local density of states at the Fe site agree well withabinitioKKR–Green’s‐function results in the literature. The first‐principles real‐space approach is extremely flexible and can be applied to investigate interactions between impurities in a nonmagnetic host or between magnetic layers separated by nonmagnetic regions. It can also handle, without extra effort, lattice relaxation around the impurities.