The method of solid-gas reaction milling was used to prepare nanocrystalline MgH2 powder. The hydrogen absorption kinetics of pure Mg during reaction milling was measured, and the powder morphology and phase structure evolution were characterized by means of X-ray diffraction (XRD), scanning electron microscopy (SEM), and transmission electron microscopy (TEM), respectively. It was found, upon milling in hydrogen, the process of Mg absorbing hydrogen presented a three-stages, i.e., slow-fast-saturation, whose phase compositions corresponded to Mg(H), Mg(H)+MgH2 and MgH2, respectively. By milling for 21 h under H2 atmosphere at 0.5 MPa, Mg could be fully hydrided into nanocrystalline MgH2 powder with an average particle size of 1~3 μm and crystallite grain size of about 10 nm, respectively. Such nanocrystalline MgH2 presented the hydrogen capacity as high as 7.03 wt%.