The effect of annealing temperature on microstructure and mechanical properties of a cold-rolled Al–10Mg alloy has been investigated by X-ray diffraction (XRD), scanning electron microscopy (SEM), electron backscatter diffraction (EBSD) and tensile testing. The results showed that supersaturated Mg precipitated along grain boundaries and deformation bands during annealing treatment and precipitation size and the concentration of solid solution Mg atoms increased with the rising of annealing temperature. When annealed at low temperature, accumulation and annihilation of dislocations were the primary way of recovery; as temperature increased to 300 °C, recrystallized grains were formed around the large size β phase through particle-stimulated nucleation. A high ultimate strength (550 MPa) and a middle ductility (14%) were obtained when the Al–10Mg alloy was annealed at 200 °C for 1 h. The abnormal decrease of elongation when the Al–10Mg alloy was annealed at 250–300 °C was due to the formation of a continuous network distribution of large size β phase particles along grain boundaries.