Plasma electrolytic oxidation (PEO) is an attractive surface engineering process for protecting light metals, such as magnesium alloys, from corrosion and wear. The coatings manufactured from the PEO process are relatively superior to its anodic oxidation equivalent in terms of hardness, structural compactness and chemical/electrochemical stability. During a typical PEO process, the pristine surface of Mg alloys is converted into a hard-ceramic coating in an alkaline electrolytic bath through high-energy electric discharges. The yielded PEO containing ceramic crystalline particles can offer improved wear and corrosion resistance to various magnesium components, thus expanding their fields of applications. This chapter aims to clarify the fundamental rules related to PEO process and summarise a range of key aspects of PEO processing for optimising quality of the oxide film upon Mg alloys primarily for wear and corrosion resistance. The last part of this chapter discusses challenges and opportunities of PEO technique and its future commercial viability.