In this paper, a new Structural Health Monitoring (SHM) technique for composite laminates through the use of embedded FBG sensors is presented. This method monitors the ply stress states of a laminate and compares them with failure criteria continuously during structures’ service time. The ply stress state of each ply composing the composite laminate can be obtained by embedding three FBG sensors in the laminate based on the classical lamination theory. In this study FBG sensor embedded graphite/epoxy composite laminate specimens were fabricated. With ply stress states being monitored, tension and fatigue tests were performed until laminates’ failure. Experimental results show that laminates experience fracture when the ply stress states are beyond the boundaries of failure criteria. Embedded FBG sensors had good fracture strain and reliability. Therefore, critical damage can be detected by the ply stress states which are close to the boundaries of failure criteria.