The microstructure of Mg-8.07Al-0.53Zn-1.36Nd magnesium alloy was characterized and analysed by using XRD, SEM, TEM and EDS. The effect of microstructure on the behavior of crack initiation and propagation was investigated by in situ tensile testing. Results show that the microstructure consists of α-Mg matrix, β-Mg₁₇Al₁₂, eutectic phase α β, needle-like Al₁₁Nd₃ and particle Al₂Nd phase while the 1.36 wt.%Nd added in AZ91 alloy. The twin structure of the Al₂Nd phase was observed, and the twin plane is {11-1}. Moreover, a continuous concave and convex interface structure of the Al₁₁Nd₃ has been found. In situ tensile testing of the alloy at room temperature shows that the crack initiation mainly occured in the β-Mg₁₇Al₁₂phase, and the crack propagation modes includes of intergranular and transgranular expansion. Crack transgranular expansion is due to the strong binding ability between of Al₁₁Nd₃ or Al₂Nd phases and surrounding organization, and the continuous concave and convex interface structure of the Al₁₁Nd₃ provides a significant meshing effect on the matrix and eutectic structure.