In the present study, magnesium composites containing pre-milled metastable Al90Y10 particles were synthesised using powder metallurgy route incorporating microwave-assisted sintering and hot extrusion. The results of X-ray diffraction reveal that the pre-milled powder changed from crystalline structure to metastable structure after 200 hours ball milling and the particle retained its metastable state in all composite samples. Microstructural characterisation shows that metastable particles were fairly distributed in the magnesium matrix and located along the grain boundaries. Further, when the amount of metastable particles increased, microhardness, 0.2% yield compressive strength and ultimate compressive strength increased significantly, coefficient of thermal expansion reduced gradually, while the compressive total strain remained almost the same. Work of fracture that indicates damage tolerance increased up to 66%. The interrelationship between microstructure and properties is discussed. Results suggest that the developed composites exhibit superior strength levels and are promising for compressive strength and damage tolerance-based engineering applications.