An interatomic potential for the Mg–Y binary system is developed within the framework of the second-nearest-neighbor modified embedded-atom method (MEAM) based on a very good MEAM potential for pure Mg. The Mg–Y potential is fitted to a range of key physical properties, either experimental or computed by first-principles methods, including the Y interaction energy with basal and pyramidal stacking faults, and properties of the B2 Mg–Y intermetallic phase. Reasonable agreement is obtained—much better than existing potentials in the literature—but differences remain for subtle but important aspects of Y solutes in Mg. The predictions of the potential for Y misfit volume in Mg, Y solute interactions with the pyramidal II edge dislocation and tension-twin boundary are then compared against recent density functional theory results, and reasonable accuracy is obtained. In light of the spectrum of results presented here, the applicability and limitations of this Mg–Y MEAM potential for investigating various plasticity phenomena in Mg–Y solid solution alloys are carefully discussed.