The fatigue behaviour of newly developed Mg2Si-dispersed magnesium (Mg) alloys produced by solid-state synthesis was studied. Rotary bending fatigue tests have been performed using smooth specimens of materials produced with fine and coarse AZ31 alloy powders. Both Mg2Si-dispersed Mg alloys exhibited lower fatigue strength than a conventional extruded AZ31 alloy and the powder size dependence of fatigue strength was clearly recognized, where the material produced with fine alloy powder showed considerably higher fatigue strength than the counterpart. Fatigue cracks invariably initiated at large Mg2Si particles immediately after cyclic loading was applied and subsequent small crack growth was faster than the extruded AZ31 alloy. It was concluded that the lower fatigue strength of Mg2Si-dispersed Mg alloys was attributed to premature crack initiation at Mg2Si particles and faster small crack growth, and the observed powder size dependence of fatigue strength was due to difference in the size of the particle from which the crack initiated.