Due to their unique precipitation behavior, magnesium-rare earth (Mg-RE) alloys exhibit excellent mechanical properties and decent thermal stability. In this work, a Mg-Gd-Y-Ag-Zr alloy was employed to investigate the segregation and interfacial phase formation at grain boundaries after plastic deformation and heat treatment. The interfacial phase was unequivocally investigated by aberration-corrected high-angle annular dark-filed scanning transmission electron microscopy (HAADF-STEM) from three different crystal directions and modeling, which reveals a hitherto unknown crystal structure (monoclinic: β= 139.1°, a= 1.20 nm, b= 1.04 nm and c= 1.59 nm). Its orientation relationship with the Mg matrix is:[101]//[11 2¯ 0] α,[302]//[10 1¯ 0] α and (010)//(0001) α. Different from the precipitates in matrix, the size of the interfacial phase was not sensitive to annealing temperature between 250° C and 400° C. Transformation of twin boundaries to coaxial grain boundaries via multiple twinning led to the generation of many high strain sites along the boundaries, which promoted the formation of the interfacial phase. The interfacial phase was stable up to 400° C, which was about 100° C higher than the dissolution temperature of β′ and γ" precipitates.