The repeated plastic working deformation(RPW) process can reduce grain size of a Mg alloy from 50-100 um to 10-500 nm, but the mechanism responsible for it has not been clear up to now. In the present paper, the effect of RPW deformation process on the grain size of Mg-5Gd-1Er alloy has been studied, and a series microstructural evaluations were performed to investigate the possible mechanism for RPW deformation by using transmission electron microscopy. Although there are no twinning or fibrous microstructures, the dynamic recrystallization, which usually occurs in high stacking fault energy metals, has been found in the alloy deformed by RPW process. The results indicated that the vacancy diffusion played an important role in this kind of dynamic recrystallization. According to the evolution of microstructure, a mechanism was proposed to explain the dynamic recrystallization for RPW deformation process.