Friction stir processing (FSP) was successfully adopted to fabricate nano-hydroxyapatite (nHA) reinforced AZ31 magnesium alloy composite as well as to achieve fine grain structure. The combined effect of grain refinement and the presence of embedded nHA particles on enhancing the biomineralization and controlling the degradation of magnesium were studied. Grain refinement from 56 to ~4 and 2 μm was observed at the stir zones of FSP AZ31 and AZ31-nHA composite respectively. The immersion studies in super saturated simulated body fluid (SBF 5×) for 24 h suggest that the increased wettability due to fine grain structure and nHA particles present in the AZ31-nHA composite initiated heterogeneous nucleation which favored the early nucleation and growth of calcium-phosphate mineral phase. The nHA particles as nucleation sites initiated rapid biomineralization in the composite. After 72 h of immersion the degradation due to localized pitting was observed to be reduced by enhanced biomineralization in both the FSPed AZ31 and the composite. Also, best corrosion behavior was observed for the composite before and after immersion test. MTT assay using rat skeletal muscle (L6) cells showed negligible toxicity for all the processed and unprocessed samples. However, cell adhesion was observed to be more on the composite due to the small grain size and incorporated nHA.