<p>Alkali-activated materials (AAMs) are promising low-carbon alternatives to Portland cement, but their wider application is limited by poor volumetric stability, high shrinkage, and slow reaction kinetics, particularly in near-neutral salt-activated systems. Reactive magnesium oxide (MgO) has emerged as a multifunctional component that can address these limitations by acting as a partial precursor replacement, a composite activator, or a primary activator. This review provides a comprehensive overview of MgO’s role in AAMs, focusing on hydration mechanisms, fresh properties, mechanical performance, volumetric stability, and durability. MgO influences AAM behavior through several mechanisms. Its hydration produces expansive brucite, which compensates for shrinkage, while in near-neutral systems MgO increases pore solution alkalinity, accelerating precursor dissolution and reaction kinetics. The formation of secondary phases, such as hydrotalcite-like compounds and hydrated magnesium carbonates, further refines pore structure, enhances durability, and contributes to self-healing. The impact of MgO is highly system-dependent. MgO generally reduces workability and accelerates setting, but significantly mitigates autogenous and drying shrinkage. Optimal dosages vary with activator type: approximately 4–7.5% is effective in sodium silicate-activated slag, whereas higher dosages (~ 5–10%) are typically required in Na₂CO₃-activated systems. Strength development is non-monotonic and activator-specific, with moderate dosages enhancing strength in Na₂CO₃-activated systems but potentially reducing strength in NaOH-activated slag due to excessive expansion. When optimally dosed, MgO improves durability by enhancing chloride binding and carbonation resistance. Overall, MgO performance depends on its reactivity, particle size, activator chemistry, and precursor composition. This review synthesizes these interactions to guide the design of durable, high-performance, and sustainable AAM binders.</p>