In this study, the influence of T5 heat treatment on tensile and fatigue behavior of hot-extruded Mg–10Gd–3Y (wt%) magnesium alloy has been investigated. High cycle fatigue tests were carried out at a stress rate (R) of −1 and a frequency of 100 Hz using hour-glass-shaped round specimens with a gauge diameter of 5.8 mm. The results show that fatigue strength (at 107 cycles) of Mg–10Gd–3Y magnesium alloy increases from 150 to 165 MPa after T5 heat treatment, i.e., the improvement of 10% in fatigue strength has been achieved. However, the crack growth resistance is lowered by T5 heat treatment. Results of microstructure observation and scanning electron microscopy-energy dispersive x-ray (SEM-EDX) analysis suggest that the fatigue strength in the Mg–10Gd–3Y magnesium alloy is determined by the threshold stress of basal slip, which is induced by solid solution hardening and precipitation hardening.