The microstructure of Mg–7Gd–3Y–0.4Zr (wt.%) alloy during isothermal aging at 200°C, 225°C and 250°C was investigated using optical microscopy (OM), scanning electron microscopy (SEM), transmission electron microscopy (TEM) and X-ray diffraction. The mechanical properties of the peak-aged materials were evaluated by using Vickers hardness values, and their corrosion resistance was studied by using immersion tests, salt spray tests and electrochemical measurements in 5% NaCl solutions (wt.%). The results show that owing to the existence of a great many β′ precipitates with a quite small size and uniform distribution in the matrix, optimal mechanical properties and good corrosion resistance in 5% NaCl solutions are obtained when the alloy is aged at 200°C for 120h. The potentiodynamic polarization curves show that the corrosion current densities of the cathodic hydrogen evolution on the alloy peak-aged at 200°C is lower than those for specimens of the alloy aged at 225°C and 250°C, which agrees fairly well with the microstructures of the alloys.