In order to develop new magnesium alloy sheets with a good balance between ductility and stretch formability at room temperature, here we designed an Mg alloy with dilute Sn and Y and investigated the microstructure, texture, mechanical properties and stretch formability of Mg-0.4Sn-0.7Y in wt% (TW00) alloy compared with AZ31 alloy under extrusion and hot rolling-annealing conditions. We found that, after extrusion, the extruded TW00 (TW00-E) sheet exhibited a more homogeneous complete dynamic recrystallized microstructure and a splitting texture character with similar to +/- 20 degrees tilted to the extrusion direction, compared with the extruded AZ31 (AZ31-E) sheet. After hot rolling-annealing at 400 degrees C, both the hot rolled annealed TW00 (TW00-RA-400) and AZ31 (A231-RA-400) sheets presented similar complete static recrystallized microstructures. However, significant texture weakening occurred in the TW00-RA-400 sheet rather than the AZ31-RA-400 sheet, due to static recrystallization induced by twins and grain boundaries. Tensile tests revealed that the TW00-E and TW00-RA-400 sheets with high Schmid factor (SF) for basal slip exhibited high ductility (similar to 33% and similar to 32%). Simultaneously, prismatic < a > slip and texture weakening played a significant role on decreasing r-values for the TW00-E and TW00-RA-400 sheets, respectively, which contributed to the improvement in stretch formability (similar to 6.2 mm and similar to 5.4 mm) at room temperature. Therefore, we concluded that the TW00 alloy provided a bright prospect to achieve a good balance between the ductility and stretch formability at room temperature via extrusion or hot rolling-annealing.