Aramid fiber/epoxy resin (AF/EP) composite has been heavily used as an impact protection material due to its excellent mechanical properties and lightweight merits. Meanwhile, it is also necessary to concern the flammability of matrix resin and the wick effect of aramid fiber, which would constitute a fire risk in harsh environments. In this work, a multifunctional flame-retardant modifier (EAD) was incorporated into the AF/EP system to improve the flame retardation. The addition of 5 wt% EAD made the AF/EP composite exhibit a high limiting oxygen index (LOI) value of 37.5%, self-extinguishment, as well as decreased total heat release and total smoke release. The results from thermogravimetric analysis (TGA) and dynamic mechanical analysis (DMA) demonstrated that the treated composites maintained good thermal stability. Due to the combined action of covalent and noncovalent bonds in the matrix-rich region, the interfacial bonding improved, which endowed AF/EP composite with strengthening and toughening effects. Compared with the control sample AF/EP, the tensile strength and ballistic parameter (V50) of the sample with 5 wt% EAD increased by 17% and 10%, accompanied with ductile failure mode. Furthermore, the flame-retardant mechanism was obtained by analyzing the actions in condensed and gaseous phases. Thanks to good compatibility and interfacial adhesion, the incorporation of EAD solved the inconsistent issue between flame retardancy and mechanical properties, which further expanded the application of AF/EP composite in the protection field.