Mg-3Y/Al composites were produced through accumulated rolling bonding. During annealing, Al-Y precipitates were synthesized in-situ within the Mg-3Y/Al composites through solid diffusion reactions. In these composites, the volume fraction of the interface layer containing abundant Al-Y precipitates can reach approximately 74% after three passes of accumulated rolling bonding and diffusion annealing. At room temperature, the Mg-3Y/Al composite exhibits increased strength (∼273.9 MPa) but reduced ductility (∼3.5%) compared to the base Mg-3Y alloy (∼191.0 MPa, ∼30%), due to the presence of numerous Al-Y precipitates and residual dislocations. These Al-Y precipitates display remarkable thermal stability, maintaining their size without significant coarsening even after annealing at 400 °C for 1 to 4 h, thereby contributing to the exceptional thermal stability observed in Mg-3Y/Al samples. After annealing at 400 °C for 4 h, the tensile strength of the Mg-3Y/Al samples remained unchanged, while the ductility increased to 8.5%. At 300 °C, the Mg-3Y/Al composite demonstrates exceptional high-temperature strength (179.9 MPa), significantly surpassing that of the original Mg-3Y alloy (110.6 MPa). Moreover, compared to the original Mg-3Y alloy and magnesium alloys reported in the literature, the Mg-3Y/Al composite exhibits a higher RE-equivalent strength at 300 °C. This enhanced strength is primarily attributed to precipitation strengthening induced by fine Al-Y precipitates. These findings underscore that introducing fine Al-Y precipitates through a solid diffusion reaction is an effective approach for achieving outstanding high-temperature strength in magnesium alloys.