In-situ synthesis of AlN-Mg composite materials by the gas bubbling method was investigated using nitrogen as the gaseous precursor in the temperature range of 700 to 800℃. The proofs of a direct reaction of N2 and Al to form AlN in Mg-Al alloy melt were found. Microstructure analysis confirmed the formation and uniform distribution of AlN phases in the alloy. An optimum process to form in situ AlN phase in Mg-Al based alloys are obtained.