Friction stir processing (FSP) was carried out for AE42 Mg alloy resulting in significant grain refinement and uniform dispersion of fine in situ precipitates. The average grain size was 20°μm for the as-cast AE42 alloy, which was refined to 1.5°μm after FSP. Tensile testing revealed significantly higher modulus and yield strength for the friction stir processed (FSPed) specimen with some improvement in ductility. The fractured surface of the as-cast alloy showed ridges, grooves and cracks indicating brittle failure. In contrast, the fractured surface of FSPed specimen showed fine dimples, characteristic of ductile failure. Nano-indentation was used to analyze the variation of hardness and modulus across the nugget zone of the FSPed specimen. FSPed specimen demonstrated greater strain-hardening tendency compared to the as-cast alloy. Enhancing the mechanical properties of Mg alloys can result in substantial cost savings across a number of industries and have wide economic impact. © 2014 WILEY-VCH Verlag GmbH & Co. KGaA, Weinheim.