This study aims to examine the effect of clay micro particles addition on the microstructure, wear and corrosion behavior of PEO coatings on AM 50 magnesium alloy. PEO coatings were prepared using an aluminate-based electrolyte with and without the presence of 5 g/L clay particles. The structure and composition of the coatings were evaluated using SEM, EDS and XRD. The wear investigations were conducted using a ball-on-disk tribometer at 2, 5 and 10 N loads. The corrosion behavior of the coatings was examined using polarization and EIS tests in 0.5 wt.% NaCl. The results revealed that the addition of clay particles deteriorated the wear resistance of the coatings under the loads of 5 and 10 N. The SEM examinations of the worn surfaces indicated that a combination of adhesive and abrasive wear mechanisms was activated for the coating with clay particles. The poor wear performance of the clay-incorporated coating was related to its lower adhesion strength and higher roughness. The potentiodynamic polarization examinations revealed that the addition of clay particles slightly decreased the corrosion rate of the coatings. Corrosion resistance of the clay-containing coating was attributed to its compactness, as indicated by the results of EIS tests.