In this study, a well-textured AZ31 Mg alloy sheet was friction stir (FS) processed, and the microstructure and texture evolution in various regions of the processed alloy were examined by optical microscopy (OM) and electron back scatter diffraction (EBSD). The results showed that the grain size in the FS zone was significantly refined compared to that in the base material (BM). The average grain size in the thermomechanically affected zone (TMAZ) and heat-affected zone (HAZ) was comparable with that in the BM. There is a gradual change of local texture from BM to FS zone due to plastic flow together with heating input during the FS processing. The <0002> direction was roughly parallel to the cylindrical pin surface normal of the FS zone. The <0002> direction in the HAZ is similar to that in the BM, but more diffuse. The <0002> direction in the TMAZ was tilted 25~30o away from the ND and there is a distinct boundary between the FS zone and TMAZ at the advancing side which introduced an incompatibility between the FS zone and TMAZ. This might explain the fact that the transverse FS processed Mg alloys commonly fracture at the advancing side during tensile tests.