New Mg-O-9Al alloy has been developed by the dispersion of oxygen atoms in the Mg-9Al alloy in which oxygen atoms are supplied from the decomposition of TiO2 nanoparticles in the Mg-9Al alloy melt. The dissolved oxygen atoms expand the lattice structures of both α-Mg and β-phase, inducing the reduced mismatch distance between α-Mg and β-phase. Therefore, yield stress of the Mg-O-9Al alloy is 143 MPa, much higher than 110 MPa in the Mg-9Al alloy. Fracture toughness values of 10.39 MPa m1/2 and 12.86 MPa m1/2 for both the Mg-9Al and Mg-O-9Al alloys are also respectively obtained. The crack propagates along the weak interface of β-phase in the Mg-9Al alloy. On the other hand, the β-phase disturbs the crack propagation route in the Mg-O-9Al alloy, showing many broken β-phases. Therefore, the improved interfacial feature with an addition of dissolved oxygen atoms in the Mg-O-9Al alloy results in much enhanced mechanical properties.