Due to the low content of alloying elements and the lack of effective nucleation sites, the fusion zone (FZ) of tungsten inert gas (TIG) welded AZ31 alloy typically exhibits undesirable coarse columnar grains, which can result in solidification defects and reduced mechanical properties. In this work, a novel welding wire containing MgO particles has been developed to promote columnar-to-equiaxed transition (CET) in the FZ of TIG-welded AZ31 alloy. The results show the achievement of a fully equiaxed grain structure in the FZ, with a significant 71.9% reduction in grain size to 41 µm from the original coarse columnar dendrites. Furthermore, the combination of using MgO-containing welding wire and pulse current can further refine the grain size to 25.6 µm. Microstructural analyses reveal the homogeneous distribution of MgO particles in the FZ. The application of pulse current results in an increase in the number density of MgO (1-2 µm) from 5.16 × 104 m−3 to 6.18 × 104 m−3. The good crystallographic matching relationship between MgO and α-Mg matrix, characterized by the orientation relationship of [112‾0]α−Mg//[01‾1]MgO and (0002)α−Mg//(111)MgO, indicates that the MgO particles can act as effective nucleation sites for α-Mg to reduce nucleation undercooling. According to the Hunt criteria, the critical temperature gradient for CET is greatly enhanced due to the significantly increased number density of MgO nucleation sites. In addition, the correlation with the thermal simulation results reveals a transition in the solidification conditions within the welding pool from the columnar grain zone to the equiaxed grain zone in the CET map, leading to the realization of CET. The exceptional grain refinement has contributed to a simultaneous improvement in the strength and plasticity of welded joints. This study presents a novel strategy for controlling equiaxed microstructure and optimizing mechanical properties in fusion welding or wire and arc additive manufacturing of Mg alloy components.