The design of advanced multifunctional Mg-based bone implants with enhanced corrosion resistance, antibacterial, and osteogenic activities should be brought to the forefront to fulfill the requirement of clinical medicine. In this work, a PEO/Mg-Zn-Al layered double hydroxide (LDH) composite coating on Mg alloy was developed via plasma electrolytic oxidation (PEO) and hydrothermal treatment. The porous structure formed during the PEO process was filled by Mg-Zn-Al LDH. The as-prepared coating exhibited better corrosion resistance than the PEO/Mg-Al LDH composite coating. In addition, the composite coating showed strong antimicrobial ability against Gram-positive Staphylococcus aureus, which was attributed to the release of Zn ions. When Zn content was controlled at 1.17 at% in the composite coating, rBMSCs showed long-term cytocompatibility and enhanced initial adhesion. Moreover, with the synergistic functions of Zn and Mg ions, cells on the composite coating showed a higher level of alkaline phosphatase activity and expression of osteopontin (OPN). With enhanced corrosion resistance, antibacterial, and osteogenic differentiation abilities, the PEO/Mg-Zn-Al LDH composite coating exhibits a promising application in bone-related implants.