In the present study, the effect of laser surface melting (LSM) on microstructure of AZ91D magnesium alloy was investigated with a 2kW continuous wave CO2 laser. The results indicate that both the substrate and laser melted layer mainly consisted of α-Mg and β-Mg17Al12, the amount of β-phase in laser melted layer was decreased as compared to that of the substrate. The microstructure of the laser surface melted zone consists of fine dendrites with an average grain size of less than 10m, the grain size was reduced by a factor of more than 10 times as compared to that of the substrate. The micro-hardness of the melted layer was increased to 70–85HV as compared to that of the substrate (about 53HV). Because of the grain refinement, the enhancement of the hard phase β-Mg17Al12, and the solid solution hardening of alloy elements, the micro-hardness and strength of the laser melted layer was increased significantly.