The present study describes the effect of friction stir processing parameters on formability of Mg AZ31B sheet under biaxial stretching. The formability of friction stir processed sheet was studied by limiting dome height test in biaxial strain deformation mode. The experiments were carried out as per the Taguchi parametric design concepts and an L9 orthogonal array was used to study the influence of various combinations of process parameters. Statistical optimization technique, ANOVA was used to determine the optimum levels and to find the significance of each process parameter. The results indicate that the traverse speed is the most significant factor followed by the rotational speed and the tilt angle in deciding the formability of friction stir processed magnesium alloy. In addition, mathematical model was developed to establish relationship between the different process variables with formability by regression analysis.