The Mg-Er binary system, as a new lightweight alloy material system with important research value and prospects for development and application, has attracted much attention from researchers in the field of materials science. Studies have shown that the addition of the rare earth element Er can improve the mechanical strength and heat resistance of magnesium alloys. However, the specific mechanism of the interaction between Mg and Er and its effect on the mechanical properties still need to be studied in depth. A combination of microscopic morphology characterization and nanoindentation experiments were employed to investigate the binary diffusion behavior and mechanical properties of the Mg-Er system between 748 K and 823 K in this research. The results indicate that the growth constant of the diffusion layer increases with temperature, with Mg24Er5 exhibiting a higher growth constant than the sum of Mg2Er and MgEr. Notably, the Mg2Er phase has the lowest growth activation energy (127.81 kJ/mol), which suggests that it is formed first during the initial growth stage due to its relatively low energy barrier. Moreover, the interdiffusion coefficient of Mg24Er5 was found to be the highest. By calculating diffusion activation energy, this sequence of formation (Mg2Er→Mg24Er5→MgEr) is in agreement with the trend of growth activation energy. Additionally, nanoindentation experiments and first-principles calculations were utilized to derive the mechanical properties of the Mg-Er binary system. The investigations unveil that Mg2Er boasts the highest hardness and Young’s modulus. These findings have significant implications for understanding the correlation between structure and properties for the Mg-Er alloy system.