AbstractAligned short carbon fiber (3‐5 mm) thermoplastic composites have potential for versatile manufacturability with little loss of mechanical properties in comparison to continuous reinforcement. Property prediction, failure behavior, and the effects of microstructural variation for these materials are not yet well explored. The finite element method was used to evaluate large domains encompassing characteristic discontinuous microstructures of thermoplastic matrix (PMMA) composites reinforced with short 3 to 5 mm carbon fibers with a high degree of alignment and conventional volume fractions. Virtual tests were performed on highly detailed microstructural simulations which included fiber‐matrix interface representation along with uniform or misaligned fiber morphologies. Stiffness, strength, and failure mechanisms were analyzed. It was shown that for ideal uniformly aligned short fiber reinforcements, the material maintains a high modulus within 95% of an equivalent continuous fiber‐reinforced polymer, along with relatively high strength at 80% of a carbon fiber reinforced polymer (CFRP). Failure modes depended on the toughness of the fiber‐matrix interface, transitioning from fiber rupture to a weaker fiber pullout failure for low interface properties. Simulations indicated that significant fiber misalignments on the order of 15% of fibers at ±15° off‐axis could sharply reduce local strength in the misaligned region to roughly 20% of the continuous fiber strength. Although partially affected by property dropoff owing to fiber off‐axis misalignment, this weakening was largely due to local matrix pockets in regions of high misalignment, which acted as failure initiation points.