In this research, one solid state processing technique, friction stir processing, is applied to modify the AZ61 magnesium alloy billet and to incorporate 5-10 vol% nano-sized ceramic particles SiO2 into the AZ61 magnesium alloy matrix to form bulk composites, using the characteristic rotating downward and circular material flow around the stir pin. The microstructure and mechanical properties of the modified alloy and composite samples are examined and compared. The FSP modified AZ61 alloy could be refined to 3-8um via the dynamic recrystallization during processing. However, the one-pass FSP modified alloy appeared the inhomogeneous grain structures to influence the tensile ductility along the welding direction at elevated temperatures due to the onion splitting. In contrast, the multi-pass FSP could improve the inhomogeneous grain structures to reduce the influence of the onion-splitting to the deformation at elevated temperatures. The FSP modified alloys show the lower yielding stress due to the unique texture of (0002) basal planes, with roughly surround the pin column surface of the pin tool in the stirred zone. In addition, it is suggested that the second processing of the subsequent compression along the normal direction might be necessary to alter the texture and to improve the lower yielding stress after modifying the grain size by FSP. Friction stir processing could successfully fabricate bulk AZ61 Mg based composites with 5 to 10 vol% of nano-sized SiO2 particles. The nano-sized SiO2 particles added into magnesium matrix could be uniformly dispersed after four FSP passes. The average grain sizes of the composites varied within 0.5-2um, and the composites nearly double the hardness as compared with the as-received AZ61 cast billet. This composite exhibited high strain rate superplasticity, with a maximum ductility of 470% at 1x10-2 s-1 and 300oC or 454% at 3x10-1 s-1 and 400oC while maintaining fine grains less than 2um in size.