The current work finds that addition of ZnO nanoparticles to Mg-Y alloy led to the reduction of ZnO leading to in-situ evolution of nano-scale Mg-Zn rich ß1′ phase and formation of yttria nano particles from Y in the matrix, as characterized by transmission electron microscopy and differential scanning calorimetry. Grain refinement and evolution of the ß1′ phase (strengthening phase) led to a significant improvement in the yield strength of the Mg-1.8Y/1.53ZnO nanocomposite as compared to the monolithic Mg-1.8Y alloy. This approach, as against the conventional approach, can be used for the in-situ fabrication of magnesium matrix nanocomposites with superior properties.