Ball-milled Mg-Ni powder has been cold-compacted and subsequently processed by severe shear deformation under high-pressure torsion. The effect of high pressure torsion on morphology and microstructure of the disk-shape samples has been characterized by scanning electron microscopy and X-ray diffraction, respectively. In order to achieve partially hydrogenated and dehydrogenated states of deformed samples, the hydrogen uptake or release was interrupted at 25%, 50% and 75% hydrogen contents in a Sieverts' type apparatus. In this paper we present the characterization of the microstructure during a full absorption-desorption cycle of the nanocrystalline Mg–Ni alloy.