Friction stir processing was performed on rare earth containing magnesium alloy AE42 with the aim of improving the mechanical properties. The resultant stir zone mechanical and metallurgical properties were analyzed to determine the application temperature of the zone. Stir zone microstructure was refined to 5 micron and the grain morphology was completely changed. Second phase intermetallics Al11RE3 and Al2RE were refined to submicron level tiny pieces and homogenously distributed throughout magnesium matrix. As a major achievement, both toughness and strength of the stir zone was improved by 15 to 25%. High temperature properties up to 250°C were better than base metal. The stir zone was capable of withstanding more temperature and stress than the base metal. © (2012) Trans Tech Publications.