The thermodynamic data of pure Ag and Y were calculated. The phase constitution, composition of micro-region and microstructures of Ag-Y alloy after internal oxidation were investigated by X-ray diffractometry(XRD), energy dispersion spectrometry(EDS) and scanning electron microscopy(SEM). The results show that the internal oxidation behavior of Ag-Y alloy is feasible from the view of thermodynamics. The upper limit of oxygen partial pressure of Ag-Y alloy oxidation is a function of temperature. Two phases (Ag and Y2O3) appear in Ag-Y alloy after the internal oxidation. The surface of Ag-Y alloy is convex because of the volume expansion of oxide in the alloy and the composition of the convex part is Ag. In Ag-Y2O3 sintered bulk Y2O3 particles are distributed inhomogeneously and conglomerated seriously, but they are dispersed uniformly in the Ag matrix after severe plastic deformation.