High-strength Mg alloys always contain heavy RE solutes, which leads to the high cost of Mg alloys preventing commercial use. In this work, we developed a new high-performance Mg–3Nd–1Yb–0.6Zn–0.4Zr alloy with low RE content and investigated the effects of heat treatment on the microstructure and mechanical properties. The results show that the main secondary phase in the as-cast alloy is the eutectic Mg₁₂RE phase at grain boundaries. The average grain size is measured to be 24.6 μm. After solution treatment, the grain-boundary eutectic Mg₁₂RE phase is completely dissolved into the matrix, without obvious grain growth. The alloy exhibits an obvious age-hardening effect during aging at 200 °C, and its hardness reaches a peak at 15 h, with a hardness increment of ~31 HV. A high-density prismatic β′ phase is formed in the matrix after peak aging. The peak-aged alloy presents optimal mechanical properties, with ultimate tensile strength, yield strength and elongation of 282 MPa, 202 MPa and 6.8%, respectively, which are remarkably superior to those of typical alloys such as EV31A and WE43. Quantitative calculation of strengthening mechanisms indicates that age hardening is the dominant strengthening mechanism of the peak-aged alloy, and the precipitation strengthening contribution of prismatic β′ phase is 158 MPa, accounting for approximately 78% of the yield strength.