Magnesium, the lightest structural metal, usually exhibits limited ambient plasticity when compressed along its crystallographic c-axis (the "hard" orientation of magnesium). Here we report large plasticity in c-axis compression of submicron magnesium single crystal achieved by a dual-stage deformation. We show that when the plastic flow gradually strain-hardens the magnesium crystal to gigapascal level, at which point dislocation mediated plasticity is nearly exhausted, the sample instantly pancakes without fracture, accompanying a conversion of the initial single crystal into multiple grains that roughly share a common rotation axis. Atomic-scale characterization, crystallographic analyses and molecular dynamics simulations indicate that the new grains can form via transformation of pyramidal to basal planes. We categorize this grain formation as "deformation graining". The formation of new grains rejuvenates massive dislocation slip and deformation twinning to enable large plastic strains.