Structural evolution, mechanical and tribological properties of Al-Mg alloy admixed with 5, 10 and 15 vol.% of iron powder using multi-pass friction stir processing (FSP) have been studied. Homogeneous distribution of intermetallic compound (IMC) particles were achieved after 4 FSP passes what resulted in increasing the stir zone hardness and ultimate tensile stress with simultaneous loss in the ductility. The reinforcement of the aluminum alloy matrix with IMCs allowed reducing wear at the same magnitude of friction. Subsurface composite tribological layer was formed on the FSPed samples as a result of rubbing against a steel counterbody.