The β1 precipitate is a key strengthening-phase in Mg-rare-earth alloys, however, the formation mechanism concerning it has not yet been addressed. Herein, we have uncovered a diffusional-displacive dominated formation mechanism for the β1 phase, using aberration-corrected scanning transmission electron microscopy observation combined with first-principles calculations, in an aged MgSm model alloy system. Shear of the nucleated {101¯0}hcp zig-zag monolayers along a direction parallel to <001>fcc with a shear angle of ~5.26°, followed by atoms shuffling on the non-close-packed {101¯0}hcp planes, can transform the hexagonal close-packed Mg3Sm structure (β” or βH’ intermediate phase) to the face-centered-cubic structure Mg3Sm (β1 phase). Besides, the formation of the β1 phase can also be realized from the other βS’ or βL’ intermediate phase (c-bco, Mg7Sm) via solute diffusion coupled with shuffle transformation manner. A new habit plane of {101¯0}hcp // {11¯0}fcc and [0001]hcp // [110]fcc on the non-closed packed plane has been identified, which is completely different from the traditional displacive transformation mechanism usually happened on the closed-packed plane. This finding enriches the diffusional-displacive transformations.