In this paper, chip recycling technology combined with SIMA method which is called CR-SIMA method was adopted to prepare semi-solid billets. AZ91D magnesium alloy was refined by Er and its microstructural evolution was investigated during semi-solid isothermal treatment. The results show that Er can improve the feature of cast structure and decrease the grain size. Moreover, the γ-Mg17Al12 phase is well refined and disperses in the α-Mg matrix. A semisolid microstructure with small and spheroidal primary particles can be obtained after partially remelting. With increasing heating temperature, the dissolution of eutectic Mg17Al12 phase first took place, resulting in the primary dendritic grains coarsening into interconnected non-dendritic grains. With heating continuously, the residual interdendritic γ-Mg17Al12 at the edges of the primary grains melted in succession and the primary grains separated into small polygon grains. During the semi-solid isothermal treatment, the amount of liquid increased until the solid-liquid system reached its equilibrium state. At the same time, owing to the decreasing of interfacial energy, the grains gradually spheroidized and began to grow with a further increasing of the holding time.