The Mg-3.9 wt% Ni2Al3 nanocomposite is produced by hydrogen plasma-metal reaction method. The particle size of Mg is in range of 40–160 nm with an average size of 90 nm. The Ni2Al3 nanoparticles (NPs) of about 9 nm uniformly disperse on the surface of Mg NPs and in situ transform to Mg2NiH0.3 and Al after hydrogen absorption process. Surprisingly, the Mg2NiH0.3 and Al can recover to the initial state of Ni2Al3 after hydrogenation/dehydrogenation cycle. The Mg-Ni2Al3 nanocomposite shows enhanced hydrogen sorption rate and storage capacity. It can quickly uptake 6.4 wt% H2 within only 10 min at 573 K, and release 6.1 wt% H2 within 10 min at 623 K. The apparent activation energies for hydrogenation and dehydrogenation are calculated to be 55.4 and 115.7 kJ mol−1 H2. The enhanced hydrogen storage performances of the Mg-Ni2Al3 nanocomposite are attributed to both the nanostructure of Mg and the catalytic effects of Ni2Al3 NPs.