Process capability analysis is the main tool of statistical process control. It is used for the ongoing monitoring of product compliance with imposed requirements. The main objective and novelty of the study were to determine the capability indices for a precision milling process of AZ91D magnesium alloy. Machining was performed in terms of variable technological parameters and using end mills with protective TiAlN and TiB coatings intended for the machining of light metal alloys. The Pp and Ppk process capability indices were determined based on the measurements of the dimensional accuracy of the shaped components that were taken on a machining centre with a workpiece touch probe. Obtained results demonstrated that the type of tool coating and variable machining conditions had a significant impact on the machining effect. The selection of appropriate machining conditions enabled a terrific level of capability to be achieved at a tolerance of 12 µm, several times lower than under unfavourable conditions where the tolerance was up to 120 µm. Improvements in process capability are mainly achieved by adjusting the cutting speed and feed per tooth. It was also shown that process estimation based on improperly selected capability indices might lead to an overestimation of the actual process capability.