Dissimilar materials joining between AZ31 magnesium alloy and SPHC mild steel with Al–Mg powder additives were successfully produced by the friction stir welding process. Al–Mg powder additives were set in a gap between AZ31 and SPHC specimen’s butt prior to welding. The experiments were performed for different weight percentages of Al–Mg powder additives at welding speeds of 25 mm/min, 50 mm/min, and 100 mm/min with a constant tool rotational speed of 500 rpm. The effect of powder additives and welding speed on tensile strength, microhardness, characterization across welding interface, and fracture morphology was investigated. Tensile test results showed a significant enhancement of tensile strength of 150 MPa for 10% Al and Mg (balance) powder additives welded joint as compared to the tensile strength of 125 MPa obtained for the welded joint without powder additives. The loss of aluminum in the alloy is compensated by the addition of the Al–Mg powder during welding under a suitable heat input condition identified by varying welding speeds. Microstructural analysis revealed that the Al–Mg powder was well mixed and dispersed at the interface of the joint at a welding speed of 50 mm/min. The intermetallic compound detected in the welding interface contributed to the welding strength.