In this work, the feasibility to recycle pure magnesium machining chips is first investigated experimentally with a solid-state recycling technique of friction stir extrusion (FSE). Heat generated from frictions among the stirring chips, die, and mold facilitates the extrusion process. Mechanical tests, optical microscopy (OM), and scanning electron microscopy (SEM) analysis are conducted to evaluate the mechanical and metallurgical properties of extruded wires. Mechanical tests show that almost all recycled specimens can achieve higher strength and elongation than original material of magnesium at room temperature. Due to a refined grain microstructure, good mechanical properties are obtained for samples produced by the rotational speed of 250 rpm and plunge rate of 14 mm/min. A metallo-thermo-mechanical coupled analysis is further conducted to understand the effects of process parameters. The analysis is carried out with a multistep two-dimensional (2D) coupled Eulerian–Lagrangian finite-element (FE) method using abaqus. The material constitutive model considers both work hardening and strain softening. Material grain size evolution is modeled by dynamic recrystallization (DRX) kinetics laws. The deformation process and its consequential microstructural attributes of grain size and microhardness are simulated. Physics principles of the microstructure evolution are discussed based on both experimental and numerical analyses.