Magnesium matrix nanocomposite reinforced with carbon nanotubes (CNTs/AZ91D) was fabricated by mechanical stirring and high intensity ultrasonic dispersion processing. The microstructures and mechanical properties of the nanocomposite were investigated. The results show that CNTs are well dispersed in the matrix and combined with the matrix very well. As compared with AZ91D magnesium alloy matrix, the tensile strength, yield strength and elongation of the 1.5%CNTs/AZ91D nanocomposite are improved by 22%, 21% and 42% respectively in permanent mold casting. The strength and ductility of the nanocomposite are improved simultaneously. The tensile fracture analysis shows that the damage mechanism of nanocomposite is still brittle fracture. But the CNTs can prevent the local crack propagation to some extent.