Magnesium-based materials, which are known for their light weight and exceptional strength-to-weight ratio, hold immense promise in the biomedical, automotive, aerospace, and military sectors. However, their inherent limitations, including low wear resistance and poor mechanical properties, have driven the development of magnesium-based metal matrix composites (Mg-MMCs). The pivotal role of powder metallurgy (PM) in fabricating Mg-MMCs was explored, enhancing their mechanical and corrosion resistance characteristics. The mechanical characteristics depend upon the fabrication methodology, composition, processing technique, and reinforcement added to the magnesium. PM is identified as the most efficient due to its ability to produce near-net shape composites with high precision, cost-effectiveness, and minimal waste. Furthermore, PM enables precise control over critical processing parameters, such as compaction pressure, sintering temperature, and particle size, which directly influence the composite’s microstructure and properties. This study highlights various reinforcements, mainly carbon nanotubes (CNTs), graphene nanoparticles (GNPs), silicon carbide (SiC), and hydroxyapatite (HAp), and their effects on improving wear, corrosion resistance, and mechanical strength. Among these, CNTs emerge as a standout reinforcement due to their ability to enhance multiple properties when used at optimal weight fractions. Further, this study delves into the interaction between reinforcement types and matrix materials, emphasizing the importance of uniform dispersion in preventing porosity and improving durability. Optimal PM conditions, such as a compaction pressure of 450 MPa, sintering temperatures between 550 and 600 °C, and sintering times of 2 h, are recommended for achieving superior mechanical performance. Emerging trends in reinforcement materials, including nanostructures and bioactive particles, are also discussed, underscoring their potential to widen the application spectrum of Mg-MMCs.