This paper studies the damage mechanisms of polycrystalline aluminate magnesium (PAMS) under different loading conditions of indentation tests and micro-cutting with various rake angles of the cutting tools. A decreasing trend is confirmed in the hardness values with growing loadings. The observed hardness value approaches a plateau at about 1406–1679 HV. The tardive cracks, which break out spontaneously within a delayed period of time following the end of indentation, are for the first time observed in the indentation experiment of this paper. The tardive crack originates from a crack system containing a lateral subsurface crack with two median cracks on its both sides. These results imply that PAMS can store the unbalanced strain energy induced by the applied loading within the vicinity of the loaded volume which will be released in accordance with the intergranular crack-growing path extending to the surface. In addition, the linear plunge-cutting tests coin the effect of tool rake angle: the tool with a zero rake angle produces poor surface quality with sever surface damages whilst the tools with negative rake angles can improve the ductility of PAMS to a certain extent. However, negative rake angles are proved to be the root cause of median cracks and large spalling fractures. On the contrary, a positive rake angle tool can be applied to reduce the severity of surface damage and confine the damage patterns mainly as small spallings fractures. Besides the experimental study, finite element method (FEM) models are developed to reveal the underlying mechanism of the rake-angle effect on the micro-cutting process. The simulation results visualise the different stress distributions in the uncut areas and prove that a tool with positive rake angle can transfer the stress to the uncut chip layer whereby the damage probability to the machined surface is significantly reduced.