The microstructures of AZ91 alloy modified by yttrium and/or erbium addition were investigated by SEM, XRD and EDS. The mechanical properties of the alloys at room temperature and 150 °C were analyzed. The results show that adding Y and/or Er can sufficiently refine α-Mg grain and decrease the amount of continuous net-like β-Mg17Al12 phase. The refining effect of co-addition is more obvious than that of Y or Er addition alone. Y-Er co-addition is more efficient in improving crystal with smaller size and better mechanical properties. Part of Y in Al2Y or Er in Al3Er is substituted by Er or Y when Y and Er are co-added in AZ91 alloy. The alloy with Y-Er co-addition has better mechanical properties than that with Y or Er addition alone. With increases of RE, the tensile strength and elongation of alloys rise at first and then drop.