n-type Mg3Sb2-Mg3Bi2 alloys have been investigated as one of the most promising thermoelectric materials. To achieve high performance, a detailed understanding of the microstructure is required. Although Mg3Sb2-Mg3Bi2 is usually considered to be a complete solid solution, nanosized compositional fluctuations were observed within a matrix and in the vicinity of the grain boundary. As an inhomogeneous microstructure can be beneficial or detrimental to thermoelectric performance, it is important to investigate the evolution of compositional variations for the engineering and long-term use of these materials. Using scanning transmission electron microscopy and atom probe tomography, a Bi-rich phase and compositional fluctuations are observed in sintered and annealed samples. After annealing, the broad intergranular phase was sharpened, resulting in a greater compositional change in the intergranular region. Annealing considerably reduces the fluctuations of Bi and Mg content within the grain as observed in atom probe tomography. Weighted mobility and lattice thermal conductivity were both increased as a result of the homogenized matrix phase. The combined microstructure features of intragrain and grain boundary effects resulted in an increased thermoelectric figure-of-merit zT of Mg3Sb0.6Bi1.4. These findings imply that the optimization of thermal and electrical properties can be realized through microstructure tuning.