In this paper, microstructure evolution of extruded Mg-2Zn-0.5Y alloy in semisolid isothermal heat treatment process was investigated. The results show that in the alloy there are α-Mg, I-Phase and W-phase, and the average grain size of α-Mg is 7 μm. During isothermal heat treatment at 793K, the grain continued growing and no liquid phase appeared until isothermal holding time arrived at 4min. With isothermal temperature raising and holding time increasing, solid α-Mg grains in the alloy were gradually growing and separated by liquid phases. Meanwhile, the liquid phase locating both at the grain boundaries and in the grain interior significantly increased. It is also found that at higher solid fractions, particle coarsening mechanism and solid particle remelting mechanism both play major roles. While at lower solid fractions, Ostwald ripening is the major mechanism and coalescence of adjacent particles could still be observed.