Mg-Gd alloy containing 22 wt.% Gd was studied in the present work. As cast alloy contains Mg46Gd9 phase located at pockets along grain boundaries. In addition the as-cast alloy contains a low concentration of rectangular GdH2 particles. Solution treatment at 530 degrees C was performed in order to dissolve Gd in the Mg matrix. The solution treatment in air enhanced the volume fraction of GdH2 particles by one order of magnitude. The formation of GdH2 particles is caused by hydrogen-induced decomposition of the Mg46Gd9 intermetallic phase. The source of hydrogen is water vapor reacting with Mg surface. A Gd-rich oxide layer was formed during solution treatment in air. Building of the oxide layer requires diffusion of Gd solutes from bulk to the surface and leads to formation of a Gddepleted sub-surface region. It was found that solution treatment in vacuum results in substantially lower volume fraction of GdH2 particles. Alternative methods of formation of GdH2 particles in Mg-Gd alloy were examined as well and are discussed in the paper. (C) 2017 Hydrogen Energy Publications LLC. Published by Elsevier Ltd. All rights reserved.