The atomic models of pure boundary and that with Mg17Al12 of α phase in magnesium alloy were set up. The segregation energies of Al and rare earth atoms, the interaction energies between Al and/or rare earth atoms, and the Fermi energy levels of different systems were calculated by using recursion method. The Al and rare earth segregation at the grain boundaries, the relationship between the interaction of Al or rare earth atoms and the ordering tendency, as well as the physical nature of the influence of rare earth on the stress corrosion of magnesium alloy were discussed. Calculation results show that: Al and rare earth atoms segregate at grain boundaries, and Al atoms repel each other, leading to the formation of the ordered Mg17Al12 phases in the grain boundaries. But rare earth atoms attract each other, so atom clusters are formed in the grain boundaries. The rare earth atom cluster can attract Al atoms, make the Al atoms to infiltrate into the rare earth atom cluster, forming rare earth compound. Therefore, rare earth have the effect of restraining the forming of Mg17Al12 along grain boundaries which functions as the cathode of magnesium alloy that leads to corrosion, this reducing the sensibility of stress corrosion.