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Alloys with composition of Mg96-xGd3Zn1Lix (at.%) (x=0, 2, 4, and 6) were prepared by conventional casting. The microstructures of these alloys under as-cast and solid-solution conditions have been observed, and the mechanical properties were investigated. The results showed that Li is an effective element to refine the grains and break the eutectic networks in as-cast MgGd3Zn1 alloy. During solid solution treatment, these broken eutectic networks are spheroidized and highly dispersed. In addition, plentiful lamellar long period stacking ordered (LPSO) phases are precipitated in an α-Mg matrix when the Li addition is not more than 4%. Solid-solution treated Mg92Gd3Zn1Li4 alloy exhibits an optimal ultimate tensile strength (UTS) of 226 MPa and elongation of 5.8%. The strength of MgGd3Zn1 alloy is improved significantly, meanwhile, the toughness is apparently increased.