Large nonlinear susceptibility that originates from strong electronic polarization enables ultrafast nonlinear optical devices. This work discovers that Mg incorporation has important contribution for enhancing second-order nonlinear susceptibility (χ(2)) and laser-induced surface-damage threshold of wurtzite ZnO epitaxial thin films deposited by radio-frequency magnetron sputtering method. Second-harmonic generation measurements derive that as-deposited Zn0.72Mg0.28O shows a gain of 48%, 77% and 33% in χ33, χ31 and χ15 with respect to as-deposited ZnO. Specially, the annealed Zn0.72Mg0.28O has a χ33 value of -57.0 ± 1.8 pm/V, which gets comparable to that of LiNbO3 crystals. Triple-axis X-ray diffraction measurements conclude that the Mg incorporation should increase the χ(2) under optical frequency electric field by strengthening electronic polarization rather than increasing the residual strain in the film. Furthermore, the annealed Zn0.72Mg0.28O exhibits an increase of 48% in laser-induced surface-damage threshold relative to [11-20] ZnO crystals. These findings open the way of the Zn0.72Mg0.28O thin films to ultrafast nonlinear optical devices.