Considering the sensitivity of both fatigue strength and corrosion rate to the surface characteristics, apposite surface treatments could address the related challenges for biodegradable magnesium-based materials. Herein, we treated the surface of a biocompatible magnesium alloy by a low cost and versatile severe plastic deformation technique, severe shot peening, to evaluate the potential of surface grain refinement to enhance functionality in biological environment. The evolution of surface grain structure and surface morphology were investigated using optical as well as scanning and transmission electron microscopy. Surface roughness, wettability and chemical composition, as well as in depth-microhardness and residual stress distribution, and corrosion resistance were investigated. Successive light surface grinding was used after severe shot peening to eliminate the effect of surface roughness and separately investigate the influence of grain refinement alone. Cytocompatibility tests with osteoblasts (or bone forming cells) were performed using sample extracts. Results revealed for the first time that severe shot peening can significantly enhance mechanical properties without causing adverse effects to the growth of surrounding osteoblasts. The corrosion behavior, on the other hand, was not improved by severe shot peening; nevertheless, slight grinding of the rough surface layer with a high density of crystallographic lattice defects, without removing the entire nanocrystallized layer, provided a good potential for improving corrosion characteristics after severe shot peening and thus, this method should be studied for a wide range of orthopedic applications in which biodegradable magnesium is used.