In order to improve the compatibility between the flame retardants of carbon microspheres coated by magnesium hydroxide (MH@CMSs) and the PET matrix and improve the spinnability of the masterbatch, MH@CMSs have been microencapsulated by PET to obtain microencapsulated carbon microspheres coated by magnesium hydroxide flame retardants – MMH@CMSs.Morphologies and structures of MMH@CMSs have been studied by scanning electron microscope (SEM), transmission electron microscopy (TEM), and FTIR, which showed that an organic shell layer of PET as capsule wall was coated on the surface of MH@CMSs. A series of MMH@CMSs/PET fibers with different MMH@CMSs contents were successfully prepared through the melt-spinning method. The morphology and structure of MMH@CMSs/PET fibers were characterized by SEM and FTIR. The flame retardancy of MMH@CMSs/PET fibers was determined via limiting oxygen index (LOI) test and cone calorimeter. Results showed that the MMH@CMSs/PET fibers possessed optimum flame retardancy when the MMH@CMSs content is 0.6 wt.%, at which the LOI reached a maximum of 25.8, and the pk-HRR, total heat release, and total smoke release were reduced by 27.4, 20, and 13.6%, compared with pure PET fibers, respectively. Moreover, the flame-retardant mechanism was studied by thermogravimetric analysis, thermogravimetric analysis-infrared spectrometry, and the SEM of the residue char, which disclosed that MMH@CMSs enhanced the thermal stability of PET fibers, and promoted PET fibers to form a dense and continuous protective char layer that effectively blocked heat transfer and combustible gas release.