Previous Al₄C₃ nuclei hypothesis cannot explain the grain refinement mechanism of Mg-Al alloys inoculated by carbon because this nucleant is impossible to form during solidification. In the present investigation a ternary compound Al₂MgC₂ was identified. It has a closer crystal structure to Mg than Al₄C₃. In the centre of grains, one or more “hillocks” with Al, Mn and C-enrichment were observed. A novel grain refinement mechanism is suggested to explain the grain refinement of Mg-Al alloys with carbon inoculations.