The dynamic microstructure evolution of Mg-3Sn-2Al-1Zn-5Li magnesium alloy during hot deformation is studied by hot compression tests over the temperature range of 200–350 °C under the strain rate of 0.001–1 s−1, whereafter constitutive equations and processing maps are developed and constructed. In most of cases, the material shows typical dynamic recrystallization (DRX) features, with a signal peak value followed by a gradual decrease. The value of Q (deformation activation energy) is 138.89414 kJ/mol, and the instability domains occur at high strain rate but the stability domains are opposite, and the optimum hot working parameter for the studied alloy is determined to be 350 °C/0.001 s−1 according to the processing maps. Within 200–350 °C, the operating mechanism of dynamic recrystallization (DRX) of Mg-3Sn-2Al-1Zn-5Li alloy during hot deformation is mainly affected by strain rate. Dynamic recrystallization (DRX) structures are observed from the samples at 300 °C/0.001 s−1 and 350 °C/0.001 s−1, which consist of continuous DRX (CDRX) and discontinuous DRX (DDRX). However, dynamic recovery (DRV) still dominates the softening mechanism. At the grain boundaries, mass dislocation pile-ups and dislocation tangle provide sites for potential nucleation. Meanwhile, flow localization bands are observed from the samples at 200 °C/1 s−1 and 250 °C/0.1 s−1 as the main instability mechanism.