The microstructures, mechanical properties, and formability of an Mg-1.5Zn-0.1Zr alloy with rare earth element of Erbium addition have been examined by using optical microscopy, scanning electron microscopy/energy dispersive X-ray spectroscopy, and thermal mechanical testing. The results showed that Erbium combined with Mg and impurity elements forming small particles dispersed on the matrix. Therm-mechanical simulation in the temperature range from 250°C to 400°C and strain rate from 0.1 to 1.0 indicated that the flow stress decreases with the increase of the temperature and the decrease of the strain rate. Sheet samples were prepared through ingot casting, hot rolling, cold rolling, and intermediate annealing. Remarkable grain size refinement was realized through recrystallization during the rolling process. Good combination of strength and ductility was achieved by applying intermediate annealing before the very last cold rolling. Further improvement of ductility and formability could be obtained by conducting proper heat treatment on the finishing cold-rolled sheets.