The inherent trade-off between ductility and strength in Mg alloys remains a significant challenge, primarily governed by microstructural distribution and texture characteristics. Friction stir processing (FSP), a severe plastic deformation (SPD) technique, refines microstructures by generating fine grains, uniformly dispersed fragmented particles, and a high fraction of high-angle grain boundaries (HAGBs), thereby facilitating superplastic forming at high strain rates and low temperatures. In the present work, a dual eccentric-pin tool (DEPT) FSP was employed to incorporate ZrO₂ particles into a 6 mm thick AZ91D Mg alloy, leading to the formation of high volume {10–12} twins, dislocations, and β-Mg₁₇Al₁₂ precipitates within the stirred zone. The microstructural evolution and mechanical behaviour of the stir zone under various process parameters were analysed using scanning electron microscopy (SEM), X-ray diffraction (XRD), electron backscatter diffraction (EBSD), and transmission electron microscopy (TEM). The DEPT enhanced plastic shearing and dynamic recrystallization, significantly reducing the grain size from 15.6 µm to 2.35 µm while promoting uniform dislocation distribution within the stir zone (SZ). Grain orientation analysis revealed a transition from basal to prismatic texture dominance (29.3% volume fraction) due to intensified radial-tangential coupling shear deformation, facilitating the activation of non-basal slip systems. The DEPT evidently improved the hardness of the SZ from 58 to 92 HV and increased tensile strength from 234 MPa to 325 MPa while maintaining an elongation of 23.8%, achieving an optimal strength-ductility balance. This work presents a one-step approach for tailoring microstructural heterogeneity and enhancing mechanical properties in AZ91D/ZrO₂ composites using the DEPT FSP technique. The method provides an effective strategy for mitigating the strength–ductility trade-off commonly observed in Mg alloys.