In this paper, symmetric cross ply CFRP laminates were fabricated using hand layup with LY556 epoxy resin as matrix and the specimens were cut without cut-out, with circular, vertical elliptical and horizontal elliptical cut-outs according to the ASTM D 7137 standard using water jet cutting. The CFRP specimens with and without cut-outs were subjected to compression under controlled condition accompanied by acoustic emission (AE) monitoring. The ultimate compressive strength for specimens with and without cut-outs were determined and compared. The optimum cut-out with lesser reduction in compressive strength was determined. The nature and dominance of different failure modes in each type of cut-out were investigated using AE. Finally the result gives useful information about improved design of laminated composites with cut-outs suitable for different applications.