In order to have a deep understanding of the relationship between adiabatic shear bands and cracks in magnesium alloys, the split Hopkinson pressure bar (SHPB) was used to study the deformation localization of the hat-shaped AZ31 magnesium alloy specimen under high strain rate impacting. The microstructure and the cracking formed within the adiabatic shear band were observed by OM and SEM, and the microhardness within and around the adiabatic shear band were tested. The results demonstrate that the adiabatic shear band is formed along the maximum shear stress direction. With the increasing of the impact loading, the micro holes form along the adiabatic shear band. When the micro holes are coarsened and connect with each other the crack forms and then the specimen is broken. The micro hardness of the microstructure in the core of the adiabatic shear band is higher than that of the microstructure around the adiabatic shear band.