Zirconium alloy has been employed widely in nuclear industry, yet the absorption of deuterium in zircaloy is considered to play a critical role in mechanical properties especially in high temperature under a loss of coolant accident (LOCA) and application for deuterium storage. However, little is known about the microstructure evolution of zircaloy during deuterium absorption. In this work, deuterium was charged into the sample at 900oC and different pressures, and the effects of deuterium content on microstructure and mechanical properties of Zr-4 alloy have been studied by means of OM, BSE, SEM, XRD, and hardness and compressive tests. The results showed that the amount of deuteride increased with the increase of deuterium content from 1.35% to 2.21%, accompanying with the morphology variations from intragranular deuteride needles to intergranular deuteride blocks, which formed an interlinked deuteride configuration and grew into equiaxed α-Zr grains. Deuteride layer was observed on the surface of sample at higher deuterium content with the micro-crack appeared within it. The mostly deuteride was δ-deuteride, and ε-deuteride was observed on sample surface with high deuterium content. There existed a hardness gradient from surface to center. With the increase of deuterium content, the hardness increased and hardness gradient became evident. With increasing deuterium content, the compressive yield strength of samples in creased slightly, but the compressive ultimate strength decreased greatly from 1176 MPa (1.35%) to 856 MPa (2.21%). The deceasing of compressive ultimate strength was probably related to the formation of micro-crack. The cracks nucleated and propagated within the intergranular deuteride blocks, which leads to the degradation of compressive ultimate strength.