<p>Biodegradable magnesium (Mg) alloys have been extensively investigated as promising biomaterials, especially in the orthopedic and cardiovascular fields. However, challenges such as rapid biodegradation and limited mechanical strength hinder their broader clinical applications. In recent years, rare earth elements (REEs) have demonstrated great potential for enhancing the performance of Mg alloys, both as alloying elements and in surface modifications. As alloying elements, REEs are effective in melt purification (e.g., reducing harmful impurities like Fe), grain refinement and microstructure regulation, thereby improving the mechanical properties (up to 177% improvement in mechanical strength) and corrosion resistance of Mg alloys (up to 225% reduction in corrosion rate). By incorporation into surface coating, the presence of REEs could not only improve the corrosion resistance, promote cell adhesion and proliferation, but also endow Mg alloys with various biofunctionalizations. This review delves into the roles of REEs in developing novel Mg-based alloys, covering the influence of REEs as alloying elements on performance of biomedical Mg alloys, REEs selection strategies, as well as the surface modification techniques with REEs incorporation. By identifying relevant literatures through systematic searches, the review comprehensively analyzes the internal mechanisms on how REEs impact the microstructure, mechanical properties, corrosion behaviors and biocompatibility of Mg alloys. Furthermore, the roles of REEs in various coating types are discussed in detail. Future perspectives on rare earth (RE)-containing Mg alloy design and RE-incorporated surface modification strategies are ultimately proposed, aiming to develop novel biofunctionalized Mg-based implants to address more extensive and complex clinical demands.</p> Graphical Abstract <p></p>