The effect of addition temperature of MgO particles (MgO_p) on their dispersion behavior and the efficiency of grain refinement in AZ31 Mg alloy was investigated. In addition, the grain refinement mechanism was systematically studied by microstructure characterization, thermodynamic calculation, and analysis of solidification curves. The results show that the grain size of AZ31 Mg alloy initially decreases and then increases as the MgO_p addition temperature is increased from 720 to 810 °C, exhibiting a minimum value of 136 μm at 780 °C. The improved grain refinement efficiency with increasing MgO_p addition temperature can be attributed to the reduced Mg melt viscosity and enhanced wettability between MgO_p and Mg melt. Furthermore, a corresponding physical model describing the solidification behavior and grain refinement mechanism was proposed.