It can be known from a large number of research results that improving the dispersibility of CNTs can effectively optimize the mechanical properties of the corresponding metal matrix composites. However, the crucial issue of increasing the bonding of CNTs and the matrix is still unsolved. In this paper, a novel method was developed to increase interfacial bonding strength by coating titanium oxide (TiO2) on the surface of CNTs. The rare earth Pr and [email protected] AZ91matrix composites were successfully fabricated by powder metallurgy. Hot press sintering and hot extrusion of the milled powder was performed. After hot extrusion, the influence of [email protected] on the microstructure and mechanical properties of the composites were investigated. The results showed that the coating process can improve the distribution of CNTs in Mg alloy. The CNTs refined the grains of the matrix, and the CNTs were presented throughout the extrusion direction. When the [email protected] content was 1.0 wt.%, the yield strength (YS), ultimate tensile strength (UTS), and elongation of the alloy attained maximum values. The values were improved by 23.5%, 82.1%, and 40.0%, respectively, when compared with the AZ91 alloy. Good interfacial bonding was achieved, which resulted in an effective tensile loading transfer at the interface. CNTs carried the tensile stress and were observed on the tensile fracture.