In order to study the effect of laser shock processing (LSP) on mechanical properties of welded magnesium alloy, tungsten inert-gas (TIG) welded AZ31B magnesium alloy sheets are processed using NdYAG laser with wavelength of 1064 nm, pulse width of 15 ns, pulse energy of 4 J and spot diameter of 3 mm. The microstructures of welded joint are examined through optical microscope (OM) before LSP. The microstructures of welded joint surface layer of sample are characterized by transmisstion electron microscope (TEM) and X-ray diffractometer (XRD) after LSP, and fracture surfaces are analyzed by scanning electron microscope (SEM). The mechanism which causes the mechanical properties improvement is discussed. The results show that nanocrystalline can be produced on the surface layer of TIG welded joint by using optimized laser parameters, and nano grain size is about 35 nm. The surface residual stress of heat affected zone is converted from tensile stress (60 MPa) to compressive stress (-125 MPa) by LSP. Tensile strength and yield strength are improved by 15.2% and 15.7%, respectively, and surface micro-hardness is enhanced by 78.2%. Furthermore, the mean impact energy of samples is increased by 58.8% after LSP. The mechanical properties improvement is attributed to a combination effect of surface nanocrystallization, strain hardness and residual compressive stress.