Plasma electrolytic oxidation (PEO) of AZ31 magnesium alloy with a thin magnetron sputtering Al layer was carried out in a silicate–hexametaphosphate electrolyte to investigate the PEO mechanism and improve the corrosion resistance of the alloy. SEM and EDS were employed to examine the coating morphology and trace the Mg and Al elements in the coatings. It is found that new coating is mainly formed at the lower part of the discharge channels close to the interface of coating/metal substrate. The previously formed oxides at the upper part of discharge channels are largely kept in their original solid forms within the discharge channels. Only a small fraction of the molten oxide flows out through the micropores of the coating, reaching the top layer. The anionic species can freely access the innermost of the coatings, which are also transported through the electrolyte-filled pores. The corrosion behavior of the coatings was examined by open circuit potentials, polarization curves and EIS tests in 3.5 wt.% NaCl. Owing to its compact nature, the magnetron sputtered Al layer can significantly improve the corrosion resistance of the AZ31 Mg alloy, which is even better than that of the samples after PEO treatment.