An augmented reality system includes a plurality of mobile devices. Each mobile device includes: an image capturing unit capturing a real image of a target marker to generate a captured image; a storage unit storing a reference image of the target marker, an individual virtual object and a plurality of interactive composite virtual objects; a wireless communication unit capable of short-distance wireless communication with another mobile device located within a predetermined range; a processing unit determining whether the captured image matches the reference image; and a display unit controlled by the processing unit to display one of the individual virtual object, the interactive composite virtual objects and the captured image.