In the present study, the effect of annealing treatment on the room-temperature mechanical performance of AZ61, AZ61-0.5CaO and AZ61-1CaO was thoroughly investigated. The as-rolled samples were annealed at 400 °C for 1 h followed by furnace cooling. Microstructural characterization was carried out using optical microscopy (OM), scanning electron microscopy (SEM), transmission electron microscopy (TEM) and electron back-scattered diffraction (EBSD). Moreover, room-temperature uniaxial tensile tests were carried out on the non-annealed and annealed samples along the rolling direction at the strain rate of 10−3 s−1. Microstructural analysis showed the presence of profuse {101¯2} twinning in non-annealed samples and the twinning fraction was increased by the addition of CaO content. SEM showed the formation of precipitates in the AZ61-CaO alloys and TEM confirmed the precipitates to be (Mg, Al)2Ca. The room-temperature tensile tests showed that the mechanical properties of AZ61 were slightly reduced by the addition of CaO, which was attributed to the higher local stress concentration due to the twin–twin interactions. Furthermore, the annealing treatment led to significant enhancement in the YS and UTS of AZ61-1CaO, which is related to the precipitation hardening induced by the intermetallic precipitates.