The second-phase particles in magnesium alloys could affect the mechanical properties of the material significantly. In this work, 3D finite element models with explicit incorporation of second-phase particles are established. The simulations are calibrated with the experimental results of the Mg-1Gd alloy. The influences of factors, such as the particle distribution, size, and orientation of cylindrical particles, on precipitation hardening are investigated in detail. Three interface conditions between particles and the matrix—perfect bonding and high- and low-strength bonding—are studied at the same time. The interface conditions are shown to exert a stronger influence on precipitation hardening compared to the factors of particle distribution and size. In contrast, the influence of the orientation of cylindrical particles at grain boundaries outweighs the effect of interface property. When second-phase particles are relatively large and all located at grain boundaries, the hardening effect can be improved, and the magnesium alloy shows relatively high flow stress. However, the high hardening effect from the second-phase particles could result in high local stress concentration and possible early failure or low ductility of Mg alloys.