Aluminum matrix composites (AMCs) are widely used in aerospace, automotive, and advanced engineering applications due to their high specific strength, wear resistance, and thermal stability. However, the presence of hard reinforcing particles makes their machining challenging, often leading to the formation of discontinuous, serrated, or unstable chips, which negatively affect surface quality and tool life. Therefore, improving chip morphology is crucial for enhancing the machinability of these materials. In this study, the effects of machining parameters (cutting speed, feed rate, depth of cut, and lubrication conditions) and the role of tin (Sn) addition on chip morphology during the turning of Al–Mg₂Si composites were investigated. Two types of composites (with and without Sn) were fabricated via in-situ casting and machined under various conditions using a Taguchi L16 orthogonal array. The results showed that cutting speed had the most significant effect on chip type and length, while feed rate and depth of cut exhibited critical influences at specific levels. SEM–EDS analysis revealed diffusion wear with the transfer of tool elements (W, Co, and C) onto the chip surface, which was mitigated under optimized machining conditions. Furthermore, the addition of 1 wt.% Sn reduced average chip length and promoted more uniform and stable chip formation. Overall, alloy modification combined with optimized machining parameters effectively improved the chip formation process, reduced tool wear, and enhanced the machinability of Al–Mg₂Si composites.