The AlN particles reinforced Mg-10Gd-3Y-1Zn (GWZ) composites were prepared by mixing AlN/Al particles using ball milling followed by stirring casting method. The influence of AlN/Al particles on the microstructural evolution and high-temperature mechanical properties of GWZ alloys were revealed and discussed. With AlN/Al particles added into the as-cast alloys, the Mg3RE phase was transformed into lamellar LPSO phase, while the content of Al2RE and LPSO phase increased. Since the Al2RE and AlN were effective nucleation sites for α-Mg, the grain size of AlN/Al-GWZ composites was reduced obviously from 126.1 to 39.8 μm. After homogenization, due to the coherent lattice matching relationships between 18R-LPSO phase and Al2RE or AlN particles, the 18R-LPSO phase nucleated on the Al2RE and AlN particles. After ageing treatment, the 2AlN/Al-GWZ composite showed the optimum mechanical properties at 250 °C, with the yield strength, ultimate tensile strength and elongation of 247.1 MPa, 265.5 MPa and 4.0%, respectively. The strengthening effect was primarily originated from the AlN particles, Al2RE and LPSO phases in the 2AlN/Al-GWZ composite. Besides, the composites can achieve the enhancement of high-temperature strength without the sacrifice of plasticity due to the coordinated deformation of AlN particles as well as the refinement of grains.