A novel process for preparing carbon nanotubes (CNTs) reinforced magnesium nanocomposites were developed, which combined friction stir processing (FSP) and ultrasonic assisted extrusion. A very good dispersion of CNTs in AZ91D alloy could be observed. It was demonstrated that the strength of Mg nanocomposites was remarkably enhanced. This was contributed to dislocation strengthening mechanism and stress transfer mechanism, not concerned with the grain refinement. Moreover, the composites maintained good ductility. The interfaces between CNTs and Mg matrix were well bonded, and the interfacial reaction product formation of Al2MgC2 was confirmed. A few edge dislocations were observed at CNTs-matrix boundaries by adding carbon nanotubes. •CNTs/Mg nanocomposites was fabricated by a novel mixed method.•Strength of 1.0 vol%CNTs/Mg composites was enhanced without sacrificing ductility.•The amount of Mg17Al12 phase decreased with increasing CNTs concentration.•The CNTs-matrix interfacial reaction product formation of Al2MgC2 was found.