In this study, the effect of ultrasonic vibration during Friction Stir Vibration Processing (FSVP) on the microstructure and mechanical behaviour of AZ31/TiC surface composites was investigated. Specifically, Titanium Carbide (TiC) particles were introduced as a reinforcement (15 vol%) into the magnesium alloy AZ31 using both Friction Stir Processing (FSP) and FSVP. Comprehensive examinations were carried out to analyse the microstructure, hardness, and tensile behaviour of the resulting composites. The study revealed significant improvements in mechanical properties due to the application of ultrasonic vibration during FSP. Firstly, the stir zone region was found to be free from voids, enhancing material flow and promoting even dispersion of TiC powders within the matrix. Secondly, refinement of grains was observed due to dynamic recrystallization and the pinning effect imposed by TiC particles, leading to the formation of more dislocations in the composite and indicating a considerable alteration in the material’s structure. Importantly, the vibration during FSP introduced an auxiliary energy source, resulting in a remarkable enhancement in both hardness and tensile strength. Compared to the AZ31/15 vol% TiC FSP composite, the composites produced via FSVP exhibited a grain size reduction of about 64% and improvements in hardness and ultimate tensile strength (UTS) of about 55% and 21%, respectively. Notably, these improvements were achieved without compromising the ductility of the composite, which remained at appreciable levels.