Mg-Tb-Nd ternary alloy represents a novel hardenable Mg-based alloy with enhanced strength and favorable creep properties. In the present work we studied microstructure of ultra fine grained (UFG) Mg-Tb-Nd alloy prepared by high pressure torsion (HPT). Lattice defects introduced into the specimen by the severe plastic deformation play a key role in physical properties of UFG specimens. It is known that positron lifetime (PL) spectroscopy is highly sensitive to open volume defects (like vacancies, dislocations, etc.). Therefore, PL spectroscopy is an ideal tool for defect characterizations in the HPT deformed specimens. In the present work we combined PL studies with transmission electron microscopy and microhardness measurements. After detailed characterization of the as-deformed structure, the specimens were step-by-step isochronally annealed and we investigated the development of microstructure with increasing temperature.