Abstract: This study systematically investigates the effects of porosity on the microstructure and mechanical properties of high-pressure die cast (HPDC) AM60 magnesium alloy. By employing in-situ micro X-ray computed tomography (Micro-CT), the evolution and underlying mechanisms of large-volume pores, projected area fraction, overall porosity, and surface crack initiation during the failure process were dynamically monitored and analyzed. The results show that large pores with high projected area fractions lead to pronounced stress concentrations during deformation, significantly reducing the material’s plasticity. In high-porosity samples, interconnected pores tend to form a “pore-sheet” structure. Once the local porosity exceeds a critical threshold, shear bands are likely to be triggered, resulting in material instability and failure. In contrast, failure in low-porosity samples is primarily initiated by surface cracks in pore-enriched regions, which propagate inward and eventually cause fracture. Moreover, local porosity plays a critical role in determining the location of crack initiation, propagation paths, and the overall failure mechanism. This study highlights that optimizing the pore structure and distribution—particularly in critical regions such as the fracture zone—through process parameter control in die casting is key to improving the ductility and mechanical performance of HPDC magnesium alloys.