The current study examined the deformation mechanisms, microstructure, and texture evolution in AZX311 Mg alloy sheets subjected to in-plane shear (IPS) deformation. Different levels of shear strains, with values 0.05, 0.10, and 0.15, were applied along the rolling direction (RD) using a specialized in-plane shear testing jig. The strain measurement for the applied shear deformation was conducted utilizing the digital image correlation (DIC) technique. The strain distribution was found to be nearly homogeneous over sufficiently large areas, thereby allowing the microstructural measurements to yield relevant statistical data. A thorough microstructural examination across the thickness using electron back-scattered diffraction (EBSD) revealed that the application of IPS strain led to the formation of a significant number of tensile twins (TTWs) in the sheet. This was evidenced by the emergence of two satellite peaks at the periphery of the pole figures. As the shear strain increased, the proportion of TTWs in the material also increased, encompassing the entire parent grain and leading to the formation of what has been termed as “all-twinned microstructure”. The microstructural and texture investigation after IPS deformation revealed that TTWs were the dominant deformation mechanism that defined the microstructure and texture under IPS deformation, while dislocation slip activity was dominated by prismatic slip, as evidenced by the resolved shear stress analysis in this study. Consequently, this research highlights the effect of IPS deformation on the microstructure and texture evolution throughout the thickness of an Mg alloy sheet and elucidates the underlying mechanisms.