A novel step grooving approach is proposed for the reinforcement incorporation before FSP, enabling the creation of through-thickness composition gradient with a higher volume fraction of reinforcement near the surface and relatively lower volume fraction in the core by using a single step of FSP. The overall tensile strength of Al-GNP functionally graded composite (FGC) is increased by ∼52% compared to pure aluminium. The localized Young's modulus and yield strength of the core region is increased by ∼12% and ∼54% compared to the surface region of the fabricated composite, respectively. The maximum strain in the core region is also decreased by ∼38% depicting its higher stiffness over the surface region. Contrastingly, the microhardness of the surface region is increased by ∼18% compared to the core region of the fabricated composite. Thus, a combination of higher surface hardness and excellent core tensile strength is achieved with the proposed methodology. The bending of graphene interlayers leading to the mechanical exfoliation of GNP increased the load sharing capability of the Al/GNP interface. The load sharing through interface and coefficient of thermal expansion mismatch between Al and GNP are identified as the dominant strengthening mechanisms in the fabricated composite.