Avian influenza A viruses (AIVs) of the H7 subtype have caused outbreaks in poultry and human ranging from mild to fatal disease. In Europe, H7 viruses have demonstrated an unusual capacity for prolonged circulation in poultry, most notably during the Italian H7N1 epizootic (1999–2001), which persisted despite control measures and provides a model to study viral adaptation under sustained immune pressure. Here, we investigated the genetic and functional evolution of hemagglutinin (HA) in Italian H7N1 viruses collected from chickens and turkeys. Phylogenetic analysis identified a turkey-associated lineage carrying six HA1 substitutions (E95G, T125V, R130K, G133E, A151T, G177V), detectable at low frequency in early LPAIV quasispecies, suggesting selection from pre-existing variants. Using reverse genetics, we demonstrate that these mutations act through compensatory and epistatic interactions to enhance viral fitness in vitro and in ovo, with stronger effects in turkey-derived cells and embryos than in chickens. While T125V alone reduced avian receptor binding and replication, the full HA1 substitution set restored replication in avian systems and conferred a competitive advantage in turkey embryos. These substitutions altered HA glycosylation, modulated fusion activity and thermal stability, and induced marked antigenic drift relative to a heterologous H7 vaccine strain. Despite extensive HA remodeling, glycan microarray analysis and molecular dynamics simulations confirmed strict maintenance of avian-type (α2,3-linked) sialic acid receptor specificity, without increased binding to human-type receptors or enhanced replication. Together, these findings demonstrate how H7 viruses adapt during prolonged poultry circulation by balancing fitness, immune escape, and host specificity without increasing zoonotic potential.