Microstructures and mechanical properties of AM60 magnesium alloy with Sm addition were investigated through OM, SEM XRD and DNS100 electronic universal testing machines. The results show that the addition of Sm can refine grains, change the morphology and the size of β-Mg17A112 phase from continuous/discontinuous netlike or strip form to cobble or particulate form. The distribution also becomes homogeneous and dispersed, and obviously improves the microstructure. After Sm addition to the alloy, the dispersed, high-melting-point particles (mainly Al2Sm phase) are formed. With increasing of Sm content, the tensile strength and elongation of AM60 magnesium alloy increase first and then decrease. With addition of 1.0wt% Sm, the tensile strength and elongation of the alloy reach the maximum 210 MPa and 6.9%, respectively. The tensile fracture mechanism of AM60 magnesium alloy is changed from cleavage fracture to quasi-cleavage fracture with toughness characteristic.