Fine-grained alloys of Mg-3Al-1Zn-0.2Mn in wt.% (AZ31B) were obtained by an equal-channel angular extrusion technique and subsequent annealing at elevated temperatures. Tensile tests were performed at room temperature at a strain rate of 1x10 -3 s -1. The alloys exhibited an apparent steady-state deformation region and a large tensile elongation of 47%. The deformed microstructure at an elongation of 2% indicated substantial cross-slip to non-basal planes induced by plastic compatibility stress associated with grain boundaries. The non-basal segment of dislocations was found to consist of 40% of the total dislocation density at a yield anisotropy factor of only 1.1 instead of an expected value of 100 obtained from single-crystal experiments. The deformed microstructure at an elongation of 16% indicated recovered regions within twins as well as untwinned matrices. These results indicate that dynamic recovery can occur in Mg alloys at room temperature.