One approach to structural health monitoring (SHM) involves embedding sensors within a composite material. However, the integration of these sensors can potentially introduce flaws that might affect the composite’s mechanical properties. This research aims to explore the impact of embedding exfoliated graphite (EG)/epoxy sensors on the mechanical characteristics of composite systems through laboratory experiments and numerical simulations. Sensor strips composed of varying volume fractions of EG/epoxy were fabricated. Tensile test specimens were prepared by embedding these sensors in the epoxy matrix oriented both lengthwise and widthwise. Baseline specimens of EG/epoxy without sensors were also created for comparison. Tensile tests were performed on the samples to evaluate the effects of the embedded sensors on the composite’s elastic modulus and tensile strength. The results indicated a slight improvement in both elastic modulus and tensile strength with the introduction of EG. Crucially, the orientation of the sensors within the samples had a significant impact on the composite’s mechanical properties. Samples with widthwise-aligned sensors showed reduced tensile strength due to delamination along the sensor edges. Finite element simulations using a viscoelastic model based on the experimental data were conducted to analyze the effect of sensor alignment on mechanical properties. The findings revealed that a grid pattern alignment of sensors significantly enhanced mechanical performance compared to lengthwise or widthwise alignment, particularly at 0.1% and 0.3% EG volume fractions, highlighting the effectiveness of a grid pattern for embedding sensors in SHM applications.