Axially flowing and rotating fluid‐particle mixture‐induced vibration and instability of a sandwich cylindrical shell are the main contribution of this work. The sandwich structure is made from a functionally graded carbon nanotube‐reinforced composite (CNTRC) cylindrical shell integrated with piezoelectric sensor and actuator layers. In this regard, the perturbation velocity potential is introduced and the pressure exerted by a fluid is obtained by the linearized Bernoulli formula. The actuator layer is subjected to an applied voltage in thickness direction which operates in control of vibration and stability. Based on Mindlin shell theory, the motion equations are derived and solved by the differential quadrature method (DQM). A detailed parametric study is conducted to elucidate the influences of the vibrational modes, distribution type and volume fractions of single‐walled carbon nanotubes (SWCNTs), boundary conditions, volume percent of particles and applied voltage on the vibration and instability of the structure. Results indicate that the system becomes unstable in the form of flutter in the cases of angular rotation of the shell or fluid as well as axial flow and angular rotation of the fluid while in the case of the rotating shell containing a corotating fluid, the loss of stability does not occur. POLYM. COMPOS., 38:E577–E596, 2017. © 2016 Society of Plastics Engineers