Confocal microscopy and water diffusivity measurements were used to characterise the development of defects in biofibre-reinforced composite materials. Biofibres swelled more than the matrix when the specimen was immersed in water, but the associated distortion of the matrix rarely caused defects. The biofibres shrank faster than the matrix when the specimen was dried in air, causing debonding at the fibre-matrix interfaces and microcracks within the fibres. We started with coarse technical fibres from the leaves of harakeke (Phormium tenax), treated a portion with 1% NaOH, and pulped a portion at 170 °C. Water diffusivities for the corresponding composites increased over the first 3 wet-dry cycles, particularly for the composite made with untreated fibre, but were too small to be of concern for the composite made from pulped fibre.