In the present work, Mg-rich Mg-Ni ultrafine powders were prepared through an arc plasma method. The phase components, microstructure, and hydrogen storage properties of the powders were carefully investigated. It is found that Mg2Ni and MgNi2 could be obtained directly from the vapor state reactions between Mg and Ni, depending on the local vapor content in the reaction chamber. A nanostructured MgH2 + Mg2NiH4 hydrogen storage composite could be generated after hydrogenation of the Mg-Ni ultrafine powders. After dehydrogenation, MgH2 and Mg2NiH4 decomposed into nanograined Mg and Mg2Ni, respectively. Thermogravimetry/differential scanning calorimetry (TG/DSC) analyses showed that Mg2NiH4 phase may play a catalytic role in the dehydriding process of the hydrogenated Mg ultrafine particles.