For metal-matrix composites (MMCs), interfacial debonding between the ductile matrix and the reinforcing hard inclusions is an important failure mode. A fundamental approach to improving the properties of MMCs is to optimize their microstructure to achieve maximum strength and toughness. Here, we investigate the flow stress of a MMC with a nanoscale microstructure similar to that of bone. Such a 'biomorphous' MMC would be made of staggered hard and slender nanoparticles embedded in a ductile matrix. We show that the large aspect ratio and the nanometer size of inclusions in the biomorphous MMC lead to significantly improved properties with increased tolerance of interfacial damage. In this case, the partially debonded inclusions continue to carry mechanical load transferred via longitudinal shearing of the matrix material between neighboring inclusions. The larger the inclusion aspect ratio, the larger is the flow stress and work hardening rate for the composite. Increasing the volume concentration of inclusion also makes the biomorphous MMC more tolerant of interfacial damage.