Mechanical properties of Carbon-Carbon (C/C) composites critically depend on the fiber-matrix interface-strength. However, almost no attention has been given to the pre-fracture behavior dictating this interface-strength. This study reports structural changes caused by inelastic energy dissipated prior to fracture, under flat-punch Nanoindentation. This test is coupled ex-situ with Transmission Electron Microscopy (TEM) to obtain electron-diffraction signatures. An “axis-alignment” procedure for semi-crystalline carbon structures in the composite is proposed to obtain accurate diffraction data. Results reveal that the dissipated energy “graphitizes” the composite, evidenced by a reduction in basal interplanar spacing of graphitic crystallites within fiber and matrix regions. Furthermore, a drastic reduction in the relative “Orientation Angle” (OA) between crystallites of both regions is observed. Both these structural changes imply a progressive weakening of the interface leading toward fracture. A first hypothesis for interface-strength is forwarded proposing that a higher initial OA-mismatch allows more scope for energy-dissipation by the observed mechanisms to yield higher interface-strength. The proposed hypothesis is successfully corroborated by comparing two C/C materials having distinct heat-treatment histories. Thus, this study establishes the role of pre-fracture microstructural evolution mechanisms in dictating interface-strength and proposes a novel hypothesis for informed design of C/C mechanical properties.