This study provided an effective technique of friction stir processing (FSP) to fabricate the NiTi particle reinforced WE43 magnesium (Mg) matrix composite. The microstructures of FSP specimens were examined by scanning electron microscopy (SEM) coupled with an energy-dispersive X-ray spectroscope (EDS). X-ray diffraction (XRD) was used for phase analysis. The results showed that the composite possessed the shape memory effect. The low processing temperature effectively prevented the interfacial reaction between the NiTi particles and Mg matrix during FSP. Regardless of particle size, the NiTi particles were homogeneously distributed in the Mg matrix. In addition, compared with the Mg matrix, the yield strength, ultimate tensile strength, and elongation of the NiTip/WE43 composite were reduced by 33%, 12%, and 18%, respectively. Both the tensile strength and elongation were decreased with increasing the size of as-received NiTi particles. The failure mechanism of the composite was interface debonding and the fracture of reinforced particles.