Magnesium alloys are widely used in the automotive and aircraft fields. They have excellent physical and mechanical properties, such as low density and high strength-to-weight ratio. However, their poor corrosion resistance has been the main impediment in their applications. Surface modification is the main methods to control the degradation rate of magnesium alloys. This problem has been studied by many researchers. The authors have proposed a lining process of metals with thin aluminium foils using shot peening. In this method, the foil can be bonded to the workpiece surface bringing about large plastic deformation. The pressure generated by the hit of many shots is utilized for the bonding. In the present study, to improve the surface characteristics of magnesium alloy, the formation of an Fe-Al intermetallic compound film on magnesium alloy by compound treatment combining shot lining method and heat treatment was investigated. Shot peening was performed with a centrifugal-type machine using cast steel ball. The lined sheet is aluminum foil with pure iron powders, and the workpiece was the commercial magnesium alloy AZ31. The lining experiment was performed at 573 K in air. The lined workpieces are heat treated by laser in air. The Vickers hardness test was performed with a microhardness tester. It was confirmed that the present method could be used for the formation of functional films on magnesium alloy.