Microstructures and mechanical properties of AM60 magnesium alloy with Sm and Ti addition were investigated through OM, SEM, XRD and DNS100 electronic universal testing machines and the effect of Sm and Ti addition was analyzed. The results show that the alloy grains can be refined greatly by the proper addition of Sm or Ti and reduce the precipitation of β. There are some Al3Ti phases formed after the addition of Ti. However, the β-Mg17A112 phase of the AM60 alloy changes from discontinuous netlike form to cobble or particulate form and even dispersed after 1%Sm addition. Particle phase of Al2Sm, Mg41Sm5 and spherical phase of Al18Ti2Mg3 are formed when adding Sm and Ti together. The rod-shaped phases in the alloy dismiss or transform roundly and massive particles become smaller by the inoculation of Ti and subsequent T6 process. With addition of 1.0%Sm and 0.4%Ti, the tensile strength and elongation reach 226 MPa and 6.7% , elevated by 34.5% and 39.6% respectively; the heat tensile strength and elongation at 200 oC reach 170 MPa and 10.4%, elevated by 53.2% and 82.5% respectively. T6 process can further enhance the mechanical properties of AM60 alloy.