An innovative method to add ceramic particles in the metal matrix to make ceramic metal matrix composite was experimented and proved with alumina powder as particles and AE42 magnesium alloy as matrix. The alloy was subjected to friction stir processing and alumina particles were added through the processing tool. AE42 magnesium alloy has primary α-Mg phase of 100-150 micron grain size and secondary phase of 10-50 micron size as precipitates. Al2RE, Al11RE3 and Al17Mg12 are main secondary phases in the form of precipitates. Alumina powder was selected with average particles size of 5 micron. For processing parameters of 300-400 rpm tool speed, 15-20 mm/minute traverse speed and a threaded pin geometry; composites with fine distribution of second phase precipitates and alumina particles in the matrix were observed. Mechanical and microstructural characterization revealed uniform properties in longitudinal and transverse directions. Composite material has superior mechanical properties than the magnesium alloy. Distribution of particles was up to the length of tool pin. Tool pin geometry, feed rate and volume percentage of alumina particles, processing speed and tool rpm on the effect of mechanical and micro-structural properties were analyzed in detail. © Published under licence by IOP Publishing Ltd.