Internal friction in ultra-fine grained Mg with 3vol% of Graphite was measured by forced vibration method at low frequencies of 0.1, 0.5, 1.0, and 2.0 Hz over a temperature range from room temperature to 753 K with continuous heating. The specimens were prepared by milling procedure in an inert atmosphere and subsequent compacted and hot extruded. Two developed peaks in the internal friction spectrum were obtained at temperatures ≈ 350 K and ≈ 550 K. While the position of the first peak is frequency dependent, the second peak position is stable, independent of measuring frequency. The activation energy of the low temperature peak was estimated. In the light of internal friction measurements, the high temperature internal friction peak is attributed to the generation and motion of dislocations produced by the difference in the coefficient of thermal expansion between the Mg matrix and Gr phase at the matrix–particle interfaces.