Extrusion–shearing of magnesium billets is associated with large deformations, high strain rates and high temperatures, which could result in many difficulties in process. Thermo-mechanically coupled three-dimensional finite element simulations of extrusion–shearing wrought magnesium alloy AZ31 into small rods at certain speed have been performed, and computed parameters including workpiece material characteristics and process conditions (billet preheated temperature, extrusion ratio, ram speed, friction factors and heat transfer coefficients) have been taken into consideration. The temperatures and stress and strain rates of extrudates with different billet preheated temperature have been calculated by finite element method software DEFORM-3D. A series of extrusion–shearing experiments and microstructure observations have been done to perform tests in order to validate the finite element method simulation results at different preheated temperatures of billets. Surface defects of rods for magnesium alloys extruded by the extrusion–shearing extrusion have been observed and analyzed. The influences of preheated temperature on the microstructures and the causes have been given. Finite element method software DEFORM-3D has been used successfully to simulate the temperatures and stress and strain rates under three different extrusion conditions. The results of these simulations helped to understand the formation of surface defects in the surface of extrusion–shearing rods. These results could assist in improving quality of extrusion–shearing extrusion.