Small amount of Y2O3 (0‐3 wt%) was added into off‐grade natural magnesite and its effects on the phase assemblage, microstructural evolution in correlation with mechanical and thermomechanical properties were investigated. Presence of Y2O3 facilitated the formation of calcium yttrium silicate and yttrialite phases, which prohibited the formation of detrimental‐phase monticellite, which was gradually reduced with the increase in Y2O3 content. Y2O3 promoted periclase grain growth and segregated the secondary phases at triple‐point junction of periclase grains. Also, high‐temperature (at 1200°C) flexural strength of the samples increased from 77.2 MPa (without Y2O3) to 137.45 MPa with the addition of 2 wt% Y2O3. Greater degree of direct bonding among periclase grains, compact microstructure, and uniform grain size distribution in addition to reduced amount of monticellite were responsible for the improvement in mechanical and thermomechanical properties.