_{: Due to the poor deformability of Mg alloys, the microstructure obtained by the conventional hot-rolling processes generally contained coarse grains. This could lead to inferior mechanical properties. To enhance the toughness, surface mechanical attrition treatment (SMAT) was utilized in this work to produce gradient structure in a hot-rolled (HR) Mg-Gd-Y alloy. The underlying mechanisms for toughening were disclosed. After peak-ageing (PA), the strength of the HR alloy increased obviously while the ductility decreased sharply. This was because the precipitates blocked dislocations and generated stress concentration, resulting in cleavage fracture as a brittle rupture. The HR-SMAT-PA sample showed comparable strength with the HR-PA sample, while the ductility was enhanced, exhibiting better toughness. The ultrafine grains in the near-surface layer led to uniform deformation and ductile fracture. Thus, the cleavage fracture in the deep layer could not go through the entire cross-section of the sample. As a result, the premature failure was inhibited and the ductility was increased}.