Cavitation processing with chemicals was used to improve the corrosion resistance of an AZ31 magnesium alloy surface. This technique improves corrosion resistance by the formation of a phosphoric acid compound film on the surface of the Mg alloy. However, the processing conditions affect the state of the film; therefore, the effect of the distance from the nozzle to the specimen surface (stand-off distance) on the cavitation state was investigated. This technique employs phosphoric acid and water for processing; therefore, immersion tests were performed with various aqueous concentrations of phosphoric acid to evaluate corrosion resistance. Cavitation processing employs water jet peening (WJP) and multifunction cavitation (MFC). The stand-off distance at which the phosphoric acid-based film was easily formed on the Mg alloy surface was specified for each processing condition. In addition to the formation of a phosphoric acid compound film, the hardness and compressive residual stress at the surface were improved after each process. A film was formed on the surface during the immersion test; however, the thickness of the film was negligible. These results confirmed that cavitation processing is effective for the formation of a phosphoric acid compound film on Mg alloy surfaces.