The microstructure changes brought by the addition of Nd element to AM60 magnesium alloy were studied, the precipitating phases were identified and their influences on the mechanical properties of alloys were investigated. Results show that Nd addition makes the refinement of microstructure of the AM60 alloy, and decreases the size of Mg17Al12 phase. Nd element takes a priority to react with Al element over Mg, Mn and Zn forming binary phase Al11Nd3 with high melting point. Certain content of Nd can increase tensile strength, yield strength and elongation of the alloy. But with too much addition, Nd would combine with more Al in matrix and decrease strengthening effect because Al11Nd3 phase would become coarsening. The mechanical property tests indicate that AM60-0.9Nd alloy has the best properties. Maximum tensile strength, maximum yield strength, maximum elongation are 230 MPa, 127 MPa and 14% respectively, increased by 28%, 48% and 250% respectively