Effect of solution and aging treatment on the microstructure of Mg-7Zn-3Al alloy is studied by using optical microscopy, scanning electron microscopy, X-ray diffraction, transmission electron microscopy and quantitative image analysis. The results show that the as-aged microstructure is composed of α-Mg matrix, grain boundary τ (Mg32(Al,Zn)49 ) phase, and fine dispersed τ particles inside the grain. The solution degree has significant effects on the formation, morphology, and size of the grain boundary τ phase. The volume fraction and the size of the undissolved eutectic τ phase decrease with the increase of solution time treated at 325°C. Through sufficient solution treatment, discontinuous eutectic τ phase retains fine strip morphology after aging, in contrast to the microstructure in sample undergone insufficient solution which manifests as-cast feature, while at the same time nano-sized particles precipitate out from the matrix. The precipitates display paralleled short bar, having certain orientation relationship with the matrix.