Modern spacecraft and launch vehicle design is more oriented towards reducing system-level design and assembly complexities. In order to maintain high overall system performance while reducing these complexities, the use of smart materials and smart structural components is a well-known practice and is currently of rising interest to space systems' designers. The paper discusses a concept of smart space structures, in particular, a carbon fiber composites structure embedded with Optical Fiber Sensors (OFS) for spacecraft and launch vehicle applications. This study highlights the operational requirements for such tank and the smart features enabled by the optical fiber sensors. For the latter aspect, a quantitative comparison between Fiber Bragg Grating sensors (FBGs) and Distributed Optical Fiber Sensors (DOFS) based on Optical Frequency Domain Reflectometry (OFDR) is presented to state their core performance parameters, such as the sensitivity, sensing range, dynamic measurement capability, and spatial resolution. The increased performance and reliability in harsh environments associated with fiber optic sensors come with a reduction in size, mass, and power consumption compared to the conventional electronic sensors. Optical fiber sensors embedded in carbon fiber structures have proven their capability in providing accurate real-time measurements of temperature and monitoring structural integrity while detecting precisely possible points of rupture and failure as discussed and demonstrated in the literature review. The applications of fiber optic sensing in smart propellant tanks may extend to detecting fluid leakage, also providing increased precision in propellant gauging through temperature mapping, and can be used in on-ground qualification, pre-flight testing, as well as in-orbit operation, condition, and structural health monitoring. The article presents a statement for an optimal FOS embedding approach in composite pressure vessels and discusses the related placement and orientation method for the fiber optic sensors, coupled with a one component simplified analytical stress-strain transfer model deriving the stress component along the maximum principal direction (i.e., σMaxPrincipal). The novel approach is believed to serve the optimal employment of embedded FOS in composite structures, e.g., pressure vessels and light-weight structures in spacecraft, among other applications. The simplified model is believed to pave the way for effective data interpretation and processing, utilizing the available limited computational resources on-board the spacecraft.