Modified Mg(OH)2/polypropylene (PP) composites were prepared by the addition of functionalized polypropylene (FPP); and acrylic acid (AA) and by the formation of in situ FPP. The effects of the addition of FPP and AA and the formation of in situ FPP on the mechanical properties of Mg(OH)2/PP composites were investigated. Experimental results indicated that the addition of Mg(OH)2 markedly reduced the mechanical properties of PP. The extent of reduction in notch impact strength of PP was higher than that in flexural strength and tensile strength. However, tensile modulus and flexural modulus increased with increased Mg(OH)2 content. The addition of FPP facilitated the improvement in the flexural strength and tensile strength of Mg(OH)2/PP composites. The higher the Mg(OH)2 content was, the more significant the effect of FPP was. The incorporation of AA resulted in further increased mechanical properties, in particular the flexural strength, tensile strength, and notch impact strength of Mg(OH)2/PP composites containing high levels of Mg(OH)2. It not only improved mechanical properties but also increased the flame retardance of Mg(OH)2/PP composites. Although the mechanical properties of composites modified by the formation of in situ FPP were lower than those of composites modified by only the addition of AA in the absence of diamylperoxide, the mechanical properties did not decline with increased Mg(OH)2 content. Moreover, the mechanical properties increased with increasing AA content. The addition of an oxidation resistant did not influence the mechanical properties of the modified Mg(OH)2/PP composites.