Abstract: The limited high-temperature oxidation resistance of Mg alloys is a key factor restricting their development and application. The addition of some rare earth elements (REs), owing to their unique physical and chemical properties, can significantly enhance the oxidation resistance of Mg alloys. Based on our previous study, we conclude that REs such as Gd, Y, and Ce enhance the oxidation resistance of Mg–RE alloys. This article comprehensively reviews recent research progress on high-temperature oxidation behavior and the potential mechanism in Mg–RE alloys. Based on the thermodynamic and kinetic analyses, the evolution of the complex oxide system formed during the high-temperature oxidation of Mg–RE alloys is first summarized. The diffusion behavior and concentration control mechanisms of REs during the oxidation process and how these mechanisms affect the sustained growth of the oxide film and antioxidant properties were elucidated. Moreover, the different structures of the oxide films were classified, and their properties were discussed. Finally, this paper introduces the applications of commonly used REs in Mg alloys and frontier research on their oxidation mechanisms. Based on the above review, we propose that future research perspectives can be explored in terms of expanding the experimental temperature range for oxidation tests, optimizing the chemical composition by adding trace REs to study their synergistic mechanism, revealing the underlying oxidation mechanism through advanced in situ microscopic characterization methods, and investigating the mechanical properties of oxide films using diverse approaches.