A series of Mg–10(Al + Y) alloys with various weight ratios of Al to Y were cast to investigate the role of Al2Y in grain refinement in Mg–Al–Y ternary system. Thermal analysis combined with microstructural and EDX analysis was used to determine the phase transformation temperatures during solidification process. Experimental results show that when the Al content is below 4 wt%, a peritectic reaction, L + Al2Y → α-Mg, occurs after the intermetallic Al2Y forms directly from the melt as a pro-peritectic phase. Once the Al content is above 4 wt%, an eutectic reaction occurs at a lower temperature. The presence of the pro-peritectic phase can lead to nucleation of α-Mg directly through a peritectic reaction although grain refining efficiency is also closely related to the active particle size. In the case where solidification does not involve a peritectic reaction, the growth restriction factor, quantitatively the Q-value, governs the grain refining efficiency. Higher Q-value corresponds to finer grains.