Material failure usually occurs on the surface. A nanocrystallization surface layer on the rare-earth magnesium alloy was fabricated by low-temperature HVOF particles obtained from novel HVOF equipment. The microstructure of the surface layer was characterized by OM and TEM. The micro-hardness was also tested along the sample thickness direction. The results show that the surface grain refinement of rare earth magnesium alloy is obvious and the grain size is less than 20 nm; grain orientation is random and the depth of the nanocrystallization layer is about 80 μm. The grain size increases with increasing of the distance from the surface. The formation mechanism of nanocrystallization is as follows: the coordinated deformation of twins and dislocation lead to segmentation and refinement of large grains. The surface hardness is increased significantly, which is about twice as high as the hardness of the matrix.