Yttrium addition can improve the oxidation resistance, mitigate hydrogen embrittlement and thus enhance the mechanical properties of the zirconium alloy. To study solid solubility extension of yttrium in zirconium alloy, the lattice parameters of a-Zr phase in Zr-Y alloy were accurately determined by X-ray diffraction (XRD). Yttrium exhibits solid solubility extension in the cast zirconium alloy which forms a metastable supersaturated solid solution with solubility limit of around 3 wt%. The effect of yttrium and thermal treatment on the microstructure of the alloys was investigated by optical microscopy (OM) and scanning electron microscope (SEM). The cast Zr-Y alloy shows a normal polycrystalline structure with dispersed a-Y particles when Y content is lower than 4 wt%, while the alloy shows a eutectic structure with dendrites formation when the Y content is higher. Yttrium exhibits a strong grain refining effect on zirconium alloy and precipitates from the metastable supersaturated Zr matrix after annealing at 700 and 900°C.