Abstract: This study revealed the nucleation event and grain refinement mechanism of Mg–Al alloy induced by Fe impurity. The following orientation relationship was observed between Al–Fe particle and α-Mg matrix in the Mg–3Al alloy containing Fe impurity using a focused ion beam aided transmission electron microscope technique: \text(\bar\text1\text011)01\bar\text1\text1\text_\textMg\text//(01\bar\text1\text)011\text_\textAl_2\textFe . Mg–3Al alloy was inoculated by adding 0.02wt% Fe to verify the nucleating potency of the Al₂Fe phase for α-Mg grain. The results indicated that Mg–3Al alloy was effectively refined with an average grain size declining from 1135 to 540 μm. Among the potential Al–Fe phases of Mg–3Al–0.02Fe alloy, only the precipitation of the Al₂Fe phase occurs earlier than that of α-Mg grain, and the Al₂Fe phase is stable in the nucleation stage of α-Mg grain. Therefore, the Al₂Fe particle is the only available nucleating site for Mg–Al alloy with Fe impurity. The heterogeneous nucleation event of α-Mg grain on the Al₂Fe particle is responsible for the grain refinement of Mg–3Al alloy inoculated by Fe.