The effects of different amounts of Li addition on the microstructure and mechanical properties of Mg_96.5Gd_2.5Zn₁ alloy by rapid solidification are investigated. The results indicate that the supersaturation of Gd and Zn solute atoms in the Mg matrix grain in the as-cast alloys decreased, (Mg, Zn) ₃Gd precipitates located at the grain boundaries increased and the grain size of Mg matrix was reduced with Li addition. After solid-solution treatment, the formation of 14H type of long-period stacking phase in the alloys was inhibited and the nano- or submicron (Mg, Zn) ₃Gd phase precipitated in large amounts with the increase of Li addition. And the Li content is 7.6 at. %, there is no LPSO formation in the alloy. After hot extrusion deformation, the block 14H phase in the alloys was kinked and delaminated, and lamellar 14H was dissolved in the matrix to some extent and (Mg,Zn)₃Gd phase was fragmented and refined, the recrystallization occurred in the matrix in different extents. Mg_96.5Gd_2.5Zn₁ alloy exhibits the best comprehensive mechanical property with the UTS of 325MPa and the EL of 9.5 %, whereas the mechanical properties of the alloys without Li addition decline gradually with the increase of Li addition. The microstructural evolution mechanism and mechanical behavior response under various conditions are analyzed.