In this research, in-situ surface nano-composites based on Mg-Al/Ni and Mg-Al/Ni-O alloying systems were produced on AZ31 plate by friction stir processing (FSP). Then, microstructural, hardness, tensile and wear properties of these specimens were investigated. For this purpose, Ni and NiO powders were placed into surface grooves and then FSP were done. In order to optimize the FSP parameters such as rotation speed and FSP passes, microstructural analyses and microhardness test were done. The result of microstructural observations on FSPed specimen without Ni and NiO powders indicated that by increasing number of FSP passes, grain size decreased from 25 µm in base metal to 7.5 and 3 µm after 1 and 5 pass process. Also, characterization of Mg-Al/Ni nanocomposite microstructure indicated that during 1 pass, reinforced particles were non-uniform in the matrix. So that in this state, Ni powder was cold welding and formed coarse Ni particle in the matrix. By increasing FSP passes, coarse Ni particles were crushed, so that after 5 passes, more uniform distribution of reinforcement particles were observed in the matrix. XRD and EDS analysis were performed to detect created phases during in-situ reaction between matrix and Ni powder. Results showed that in Mg-Al/Ni composite that produced during 1 pass FSP, Mg 2 Ni and Al 3 Ni 2 intermetallic compounds were formed. By increasing FSP passes the amount of Mg 2 Ni and Al 3 Ni 2 reduced and AlNi and MgNi 2 intermetallic compounds were formed instead of Mg 2 Ni and Al 3 Ni 2 compounds. The microstructure of surface nanocomposite in Mg-Al/Ni-O alloying system indicated that during 3-pass FSP, uniform distributions of reinforcement particles obtained. Also, XRD pattern of this specimen indicated that at the first stage of FSP, reaction between Mg and NiO started and MgO and Ni were formed in the microstructure. Finally by increasing FSP passes Ni reacted with available aluminum in the matrix, therefore Al-Ni intermetallic compounds were formed. The hardness of base metal, Mg-Al/Ni and Mg-Al/NiO were 56, 106 and 140 Hv, respectively. The tensile test results indicated that ultimate tensile stress of base metal and Mg-Al/Ni-O composite were 226 and 320 MPa, respectively. Additionally, wear test analysis indicated that wear resistance of Mg-Al/NiO surface composite is much better than for base metal. Keywords: Insitu nano-composite, magnesium, Nikel, Nikel Oxide, Friction Stir Processing