Friction-stir processing (FSP) imposed a remarkable grain refining effect on Al-5Mg-0.2Sc alloy, changing typical dendritic microstructure into fine and equiaxed recrystallized grains. Such effect was found to be related to intense plastic deformation and high-temperature exposure, resulting in occurrence of dynamic recrystallization. During this process, Al3Sc dispersoids due to the addition of 0.2 % Sc in a high density were precipitated and effectively hindered the migration of grain boundaries and subsequent grain growth, giving rise to a significant grain-refining strengthening effect. On the other hand, these Al3Sc precipitates caused an additional substructure strengthening and precipitation strengthening effect. An attractive comprehensive property of Al-5Mg-0.2Sc alloy subjected to FSP was obtained.