Mg–3Al–1Zn (AZ31) alloy was caliber rolled isothermally at the temperature of 300 °C to develop fine grains of 3 µm size. The microstructure and texture evolution of caliber rolled bar during annealing at 300 °C was investigated for 5 to 6000 min. The grain growth from 6 to 17 µm was observed. The grain growth was noted to be faster initially but it became sluggish after ~60 min of annealing. The changes in pole figure intensity, mis-orientation angle, kernel average mis-orientation and grain orientation spread were observed after caliber rolling and after annealing. The microstructure and presence of twins after caliber rolling play a vital role in formation of texture after annealing. The changes in microstructure and texture were analysed and the mechanisms involved are discussed. © 2015, The Indian Institute of Metals - IIM.