Heterogeneous self-sensing materials that respond electrically to mechanical strains enable real time health monitoring of structures. To facilitate design and applicability of such smart materials with piezo-resistivity, a finite element-based numerical framework is being proposed in this paper for evaluation of electro-mechanical response and strain-sensing ability. Intrinsic heterogeneous nature of such composites warrants the need for microstructure-based study to have an insight into the effect of microstructural configuration on the macro-scale response. The microstructure-guided simulation framework, presented in this paper, implements interfacial debonding at the matrix-inclusion interface using a coupled interface damage-cohesive zone model and incorporates an isotropic damage model in the matrix under applied strain in the post-peak regime to obtain the deformed/damaged microstructure which is subjected to an electrical potential to simulate change in resistance due to applied strain. The applicability of the simulation framework is confirmed through its successful implementation on a smart structural material containing nano-engineered conductive coating at the inclusion-matrix interfaces. The predicted electro-mechanical responses correspond very well with the experimental observations and thus, the model has the potential to help develop design strategies to tailor the microstructure in these self-sensing materials for efficient performance.