A systematic simulation has been carried out using finite element method to investigate the effects of particle/matrix transition interface on the stress distributions in YAl2 particle reinforced Mg-Li-Al composites. The results show that the transition interface could improve the continuity of physical properties between particles and matrix, thus enhancing the stress transfer efficiency. Meanwhile, the transition interface can also reduce the degree of stress concentration at interface, resulting in higher strength and toughness of composites.