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Semi‐solid billets of an AZ61 magnesium alloy are prepared by a repetitive upsetting‐extrusion (RUE)‐based strain induced melt activation (SIMA) method. Mechanical response and microstructure evolution in compression of the semi‐solid slurry with high solid fraction are investigated. The results reveal that the SIMA‐processed thixotropic structure comprises of globular solid particles and liquid films. True stress–true strain curves experience a rapid increase to the peak within a small strain, a slow decline, and the final steady‐state flow. Three regions of the dense deformation region, the severe deformation region, and the free deformation region are detected in the compressed specimen with reference to microstructure observation. Liquid segregation is found in the free deformation region due to the exudation of the liquid phase. The compression of the semi‐solid slurry is achieved by the coordination of the solid particles’ rearrangement and the liquid flow. The initial deformation stage is governed by the sliding or rotating of the solid particles. Mechanisms of the sliding between solid particles and the plastic deformation of the solid particles are responsible for the second and the final deformation stages, and their relative contribution is closely related to the solid fraction and deformation strain.