Dynamic compression tests and projectile impact tests were used to investigate the adiabatic shear behavior of Mg-10Gd-2Y- 0.5Zr alloy. The microstructural characterization of the post-test specimen was studied by means of optical microscopy. Two kinds of adiabatic shear bands were found in the post-test specimens impacted by spherical bullet and Hopkinson pressure Bar. The bands formed in the process of projectile impact are “white” bands of width about 10 μm. The microhardness in the “white” band is obviously higher than that in the matrix. In addition, the “white” bands come into being only in the stable penetrating stage because of enough strain. Obvious deformation bands can form only at T=735 K in the process of Hopkinson compression. The cracks within a propagating shear band are induced by twins paralleling to the shear direction.