The effects of yttrium on the microstructure and mechanical properties of magnesium alloy AZ81 have been investigated by alloy preparation, microstructure analysis and tensile tests. The results show that proper content of yttrium addition can obviously refine the microstructure of magnesium alloy AZ81, reduce the amount of β-Mg17Al12 phase, lead to the precipitation of Al2Y phase and improve the mechanical properties. After solid solution and aging treatment, the tensile strength and elongation of the alloy increase at first and then decrease with the increase of yttrium content, and reach the maxima at 2%Y. At room temperature, the maxima are 277MPa and 10.9% respectively. At 150 , the maxima are 220MPa and 12.4% respectively.