Structural and functional integration of metal matrix composites is both a goal pursued by researchers and a challenging issue. In this study, a series of Al3Fe@Fe core-shell structured micro-sized particle reinforced magnesium matrix composites were prepared by using AZ31 alloy and Fe powders. The Al3Fe@Fe core-shell structure induces the “back-stress” strengthening in the composite due to the difference in deformation ability of matrix, Al3Fe “shell” and Fe “core” during the deformation process. This also improves the strain hardening ability of the composite, resulting in synchronous improvement of both strength and ductility. In addition, the reinforcing particles with “core-shell” structure endow the composite with certain magnetism, achieving a synergistic contribution of dielectric and magnetic losses, significantly enhancing the electromagnetic shielding effectiveness of the composite. Compared with the matrix alloy, the addition of 15 wt% Fe in the composite increased the SET by 70 %, and the SEA/SET increased from 0.46 to 0.73.