The effects of semi-solid isothermal process parameters on the microstructure evolution of Mg-Gd rare earth alloy produced by strain-induced melt activation (SIMA) were investigated. The formation mechanism of the particles in the process of the isothermal treatment was also discussed. The results show that the microstructure of the as-cast alloy consists of α-Mg solid solution, Mg5RE and Mg24RE5 (Gd, Y, Nd) phase. After being extruded with an extrusion ratio of 14:1 at 380 he microstructure of Mg-Gd alloy changes from developed dendrites to near-equiaxed grains. The liquid volume fraction of the semisolid slurry gradually increases with elevating isothermal temperature or prolonging isothermal time during the partial remelting. To obtain an ideal semisolid slurry, the optimal process parameters for the Mg-Gd alloy should be 630 ℃ for isothermal temperature and 30 min for the corresponding time, respectively, where the volume fraction of the liquid phase is 52%.