<p>Aluminum and magnesium alloys are widely utilized in lightweight structural applications; however, reliable dissimilar joining remains a significant challenge due to the formation of brittle Al-Mg intermetallic compounds (IMCs). Friction stir welding (FSW), a solid-state joining technique, has shown strong potential for producing high-quality Al/Mg butt joints. But, the joint performance is highly sensitive to IMC formation and heat input. This review critically examines the mechanisms governing IMC formation, focusing on eutectic reactions, interdiffusion behavior, and heat input during welding. In FSW, heat input, controlled by process parameters such as material positioning (advancing and retreating side), tool rotational speed, travel speed, and tool positioning, plays a crucial role in governing material plasticization, interdiffusion, and IMC formation. Excessive heat input promotes thick and continuous IMC layers, while insufficient heat input leads to poor material flow and weld defects. The effects of key process parameters on microstructure, defect formation, and mechanical properties are systematically discussed. Furthermore, recent advancements in modified FSW techniques; such as cooling-assisted FSW, ultrasonic-assisted FSW, and the incorporation of metallic interlayers are evaluated for their effectiveness in controlling heat input, limiting IMC thickness, refining microstructure, and enhancing joint strength. Comparative analyses indicate that optimizing heat input and interfacial reactions is critical for achieving defect-free joints with improved tensile performance. This review provides a focused and comparative understanding of processing-microstructure-property relationships in Al/Mg FSW butt joints, offering practical insights for process optimization and the development of high-strength, reliable dissimilar joints for advanced lightweight applications.</p>