Wire-arc directed energy deposition (DED) has attracted significant interest for the fabrication of large-sized, lightweight Mg-alloy components. However, these components generally exhibit poor mechanical properties and limited corrosion resistance owing to their inherent residual stress and non-equilibrium microstructures. Herein, laser shock peening (LSP) was adopted to successfully modify the stress state and microstructure of AZ31 Mg-alloy fabricated using wire-arc DED. The influence of LSP on the residual stress, mechanical properties, electrochemical behaviour, and microstructural evolution was systematically investigated. The experimental results indicate that, compared with the as-built specimen, the performance of the LSP-treated specimen was notable, with a ≈63.8% decrease in the corrosion current density and ≈30% and ≈13% decreases in the yield strength (YS) and ultimate tensile strength, respectively. The enhanced corrosion resistance can be attributed to the LSP-induced compressive residual stress, nanograins, and nanoparticles. Nanocrystallisation, particle refinement, dense mechanical twins (MTs), and planar dislocation arrays (PDAs) jointly contributed to the enhancement of the YS. The LSP-induced nanocrystallisation was rationalized by the accumulation of PDAs, the intersection of multiple nano-MTs, and the transformation of nano-MTs blocks into sub-grains and then into nanograins owing to continuous dynamic recrystallisation. The particle refinement mechanism involved dislocation proliferation and the development of dislocation slip bands, which eventually led to fragmentation and separation. Therefore, this study introduces a LSP post-treatment technology for the residual stress regulation, microstructural modification, and performance enhancement of Mg alloys fabricated using wire-arc DED. Based on the ability of LSP to tailor the microstructure and performance of Mg alloys, a novel method of wire-arc DED with online LSP treatment is proposed. This method can achieve in-situ surface strengthening and the integrated formation of large-sized components with complex geometries.