Neutron diffraction method has been applied in theex-situinvestigation of the residual stresses in Mg-5wt.%Al-1 wt.%Sr (AJ51) magnesium alloy reinforced with short Saffil® fibers deformed in compression at room temperature. The residual stresses were measured in the axial and radial directions with respect to the load direction. It is shown that in the initial state the tensile stress is present in the matrix phase. Thein-situacoustic emission measurements were performed with the aim to reveal the main deformation mechanisms operating in the particular stages of the plastic deformation. Ex-situ neutron diffractions experiments showed that the tensile axial residual stress in the matrix increases with increasing plastic deformation while the radial residual stress decreases. In situ acoustic emission measurements indicate that the main deformation mechanisms are twinning and glide of bigger dislocation ensembles in the early stages of the compressive deformation while the fibers breakage was observed in the vicinity of the maximum stress.