Many researchers have studied on the precipitation control after solution treatment to improve the damping capacity without decreasing the strength. However, studies on the damping capacity and microstructure changes after deformation in the solid solution strengthening alloys were inadequate, such as the Al-Zn series magnesium alloys. Therefore, in order to investigate the effect of annealing condition on microstructure change and damping a capacity of AZ61 magnesium alloy. In this study, it was confirmed that the microstructure changes affect the damping capacity and hardness when annealed AZ61 alloy. AZ61 magnesium alloy was rolled at 400℃ with rolling reduction of 30%. These specimens were annealed at 350℃ to 450℃ for 30-180 minutes. After annealing, microstructure was observed by using optical microscopy, and damping capacity was measured by using internal friction measurement machine. Hardness was measured by Vickers hardness tester under a condition of 0.3 N. In this study, static recrystallization was observed regardless of the annealing conditions. In addition, uniform equiaxed grain structure was developed by annealing treatment. Hardness is decreased with increasing grain size. This is associated with Hall-Petch equation and static recrystallization. In case of damping capacity, bigger grain size show the larger damping capacity. (Received February 0, 2018; Revised March 0, 2018; Accepted March 0, 2018)