Mg₉₆Zn₂Y₂ alloy with a long period stacking ordered (LPSO) phase was produced by extrusion, and the effects of annealing on its microstructure and mechanical properties were investigated. Annealing at temperatures up to 623 K improved the elongation of the alloy from 5.4 to 9.6% but caused no changes in yield stress and tensile strength, respectively, because the LPSO phase prevented grain growth, the α-Mg phase maintained a fine grain size, kink deformation remained in the LPSO phase, and the Mg₃Zn₃Y₂ phases finely dispersed. When the alloy was annealed at 773 K, the α-Mg and Mg₃Zn₃Y₂ phases became coarse, which reduced the yield stress and tensile strength, respectively, while the elongation improved to 23%.