An optimal dispersion of chemically functionalized Multi-Walled Carbon Nanotubes (CNTs) in Carbon Fiber Reinforced Polymer Composites (CFC) can enhance mechanical and thermal properties. Nano-composite fabrication involves precise processing steps and parameters supported by simulations to explain deformation and fracture mechanisms. Controlled dispersion and processing reveal a significant interplay between stiffening and strengthening in the CNT-matrix. Crack bridging optimizes nano-scale stiffening and strengthening by delaying micro-crack initiation and propagation, emphasizing the importance of CNT dispersion and entanglement disruption. The correlation between nano-scale stress, fracture energy, and optimal CNT spacing at the macro-fiber interface is critical. With dilute CNT dispersion, improvements of 8% in specific modulus and strength in the matrix lead to significant enhancements in the fabric system, mainly through CNT-fiber interfacial mechanisms. This optimization results in a 9%–13% increase in specific stiffness, a 5%–9% increase in specific strength, and improved fracture properties. Thermal stability improves with increased storage modulus, glass transition temperature, and thermal conductivity (18%–25%), while specific heat capacity increases by 30% with 0.3 wt % CNT in the composite. CNT nano-reinforcement enhances fracture toughness, transferring to the fabric-matrix interface with a transfer ratio greater than one. CNT-modified carbon fabric composites demonstrate the highest interlaminar fracture properties, with a Mode-II to Mode-I fracture toughness ratio greater than 9, compared to the base composite. These studies establish a normalization scheme for nano-composite design and evaluation, providing insights for developing damage-tolerant, lightweight, and durable structural designs through multi-objective optimization.