Microstructure regulation via short-time heat treatment is conducive to the optimization in the microstructure and properties of precipitable magnesium (Mg) alloys, but there is currently a lack of relevant studies. In this work, the microstructure evolution of a Mg-RE-Ag alloy during different short-time heat treatments was characterized and discussed. The results show that extreme short-time heat treatment (ESHT, e.g., 2 min) at 450–480 °C can greatly increase solute concentration in Mg matrix through the rapid re-dissolution of the second-phase and simultaneously maintain fine grains, while the ESHT at a too high temperature (e.g., 510 °C) is not suitable due to excessive grain growth and coarse second phase regenerated at grain boundaries. It is found that 480 °C is the approximate critical temperature for appropriate ESHT, and further prolongation of the time will lead to excessive grain growth. It is suggested that in addition to grain boundary migration, grain rotation is activated, resulting in the annihilation of high-angle grain boundaries with relatively low misorientation, as well as the reduction in the ability of the residual second phase to pin grain boundaries. In addition, the reasons for the abnormal grain boundary segregation and grain boundary continuous phase were analyzed from the perspective of interfacial energy. This study provides a basis for effective microstructure regulation of Mg-RE alloys.