Grain refinement is of very important significance for improving the microstructure and mechanical properties of Mg alloys. This work investigated how the addition of various amounts of Y element affected the microstructure and mechanical properties of Mg-9Al-1Zn alloy. It was found that the grain size of Mg-9Al-1Zn alloy decreases as Y element content increases. When 1.2 wt.% Y element content was added, the grain size of Mg-9Al-1Zn alloy could be reduced from 334.2 μm to 134.6 μm, and grain refinement efficiency of 60% was achieved. HRTEM analysis demonstrated a good orientation relationship between the Al₂Y phase and the Mg interface, and therefore, it was determined that the Al₂Y phase can be used as a heterogeneous nucleation site for α-Mg grains, which promotes the grain refinement of α-Mg grain. Furthermore, the addition of Y element can also significantly refine the eutectic Mg₁₇Al₁₂ phase of the Mg-9Al-1Zn alloy. In this way, the mechanical properties of the Mg-9Al-1Zn alloy are significantly enhanced. It was found that the YS and UTS of the Mg-9Al-1Zn alloy reached 87 MPa and 154 MPa with the addition of 0.9 wt.% of Y element—24% and 43% higher than the Mg-9Al-1Zn alloy.