Isothermal hot compression experiments were conducted on Mg-2.5Nd-0.5Zn-0.5Zr alloy to investigate hot deformation behavior at the temperature range of 573–773 K and the strain rate range of 0.001 s⁻¹–10 s⁻¹ using a Gleeble-3500D thermomechanical simulator. The results showed that the rheological curve showed a typical work hardening stage, and there were three different stages: work hardening, transition and steady state. A strain compensation constitutive model was established to predict the flow stress of the Mg-2.5Nd-0.5Zn-0.5Zr alloy, and the results proved that it had high predictability. The main deformation mechanism of the Mg-2.5Nd-0.5Zn-0.5Zr alloy was dislocation climbing. The processing maps were established to distinguish the unstable region from the working region. The maps showed that the instability generally occurred at high strain rates and low temperatures, and the common forms of instability were cracking and flow localization. The optimum machining range of the alloy was determined to be 592–773 K and 0.001–0.217 s⁻¹. With the increase in deformation temperature, the grain size of the alloy grew slowly at the 573–673 K temperature range and rapidly at the 673–773 K temperature range.