Friction stir processing (FSP) was used on coarse-grained WE54 magnesium alloy plates of as-received material. These were subjected to FSP under two different cooling conditions, refrigerated and non-refrigerated, and different severe processing conditions characterized by low rotation rate and high traverse speed. After FSP, ultrafine equiaxed grains and refinement of the coarse precipitates were observed. The processed materials exhibited high resistance at room temperature and excellent superplasticity at the high strain rate of 10−2 s−1 and temperatures between 300 and 400 °C. Maximum tensile superplastic elongation of 726% was achieved at 400 °C. Beyond 400 °C, a noticeable loss of superplastic response occurred due to a loss of thermal stability of the grain size. Grain boundary sliding is the operative deformation mechanism that can explain the high-temperature flow behavior of the ultrafine grained FSP-WE54 alloy, showing increasing superplasticity with increasing processing severity.