The microstructure and mechanical properties of Mg97Y2Zn1 alloys during rolling at 450 °C and 500 °C have been investigated in this work. The microstructure of pre-rolled alloy mainly consisted of the α-Mg matrix, block 18R LPSO phase distributed at the grain boundary, and lamellar 14H LPSO phase distributed in grain interior. After rolling, the 18R LPSO phase and 14H LPSO phase were kinks obviously at both temperatures of alloys. The alloy rolled at 500 °C produced serious DRX, and the occurrence of DRX is related to the 14H LPSO phase: (i) the interface between 14H LPSO phase and α-Mg matrix could act as a nuclear site of DRX grain and further refine grain by discontinuous DRX mechanism. (ii) The kink boundary of 14H LPSO phase evolved into a grain boundary through the continuous DRX mechanism and promotes the generation of DRX. Tensile testing indicated that the alloy rolled at 450 °C possessed the higher yield strength, and the alloy rolled at 500 °C had the higher ultimate tensile strength. The dominant deformation mechanism of the 450 °C rolled alloy was a prismatic slip and prismatic kink, and the formation of a strong rolling basal texture resulted in the improvement of yield strength. For the alloy rolled at 500 °C, the formation of rolling texture is mainly related to twinning. In addition, the severe DRX degree with refined DRX grains contributed to the improvement of ultimate strength and ductility for the alloy rolled at 500 °C.