The paper addresses the failure mode of ultrafine grained magnesium alloy AZ31 under superplastic deformation conditions. The ultrafine grain structure and the resulting exceptional superplastic properties were produced by Equal Channel Angular Pressing with an imposed hydrostatic pressure conducted at a relatively low temperature of 150 °C. The mechanism of the superplastic ductility was studied by examining the fracture surfaces and internal cavities in superplastically deformed specimens by scanning electron microscopy. The presence of Mg17Al12 particles was identified as the controlling microstructural feature giving rise to porosity formation and limiting tensile ductility. Fine details of the failure process depending on the particle and precipitate structure as well as textural effects were described.