Microstructure of hot rolled and annealed Mg-3Zn-2Gd alloy was characterized by optical microscopy and scanning electron microscopy. Meanwhile, their tensile mechanical properties at ambient temperature were tested. The results show that the microstructure of the alloy sheet is refined after rolling by the strain range from 23% to 67% and the average grain size decreases from 10 μm to 4 μm by the rolling strain of 67%. Lots of twins and shear bands in the initial microstructure decrease gradually. When the rolling strain increases to 67%, the shear bands disappear, and meanwhile the dynamic recrystallization grains and few twins exist, while the tensile mechanical properties of the alloy are enhanced significantly. Tensile strength σ_b and yield strength σ_0.2 increase from 255 MPa and 215 MPa for the non-rolled alloy to 305 MPa and 300 MPa for the rolled alloy by strain 67% respectively, while the elongation δ first increases, and then decreases. After annealed at 573 K for 1 h, the rolled alloy experienced static recrystallization, in the meanwhile, the non-uniform deformation areas disappeared and finally showed a microstructure of fine and uniform equiaxed grains, and the relevant σ _b and σ _0.2 decreased to 265 MPa and 235 MPa, respectively, while δ slightly increases to 19.0%. The tensile fracture consists of a large number of dimples presenting the typical characteristic of ductile fracture.