The influence of rare earth (RE) elements on the microstructure and mechanical performance of an extruded ZK60 Mg alloy was studied. Two types of RE elements were added to a ZK60 material and then extruded at a ratio of 18:1. The first new alloy contained 2 wt% Y while the second one was produced using 2 wt% Ce-rich mischmetal. The microstructure, the texture, and the dislocation density in a base ZK60 alloy and two materials with RE additives were studied by scanning electron microscopy, electron backscattered diffraction, and X-ray line profile analysis, respectively. It was found that the addition of RE elements caused a finer grain size, the formation of new precipitates, and changes in the initial fiber texture. As a consequence, Y and Ce-rich RE elements increased the strength and reduced the ductility. The addition of these two types of RE elements to the ZK60 alloy decreased the work hardening capacity and the hardening exponent mainly due to grain refinement.