Abstract This paper introduces a multistage smart structural health monitoring (SHM) model for carbon-fiber composites, with a focus on multiple types of acoustic emission (AE) source localization and classification. The SHM model uses time-frequency data from various AE events (such as tool drops, impact, and artificial debonding) across different zones of a composite structure. The SHM strategy demonstrates a robust smart monitoring of composites with high accuracy. Further, a hypothesis testing has been carried out that supports the superiority of a 2-stage identification process, revealing statistically significant higher accuracy and confidence intervals across all zones and AE source types. This research establishes a novel framework for solving a hierarchical multistage holistic damage source identification problem, offering robustness in identifying various damage scenarios and quantifying associated prediction uncertainties.