This study evaluates the performance of composite structures with embedded conductive yarns during shock loads to create a multifunctional system for immediate failure detection. The scalable sensing yarns were made by braiding Kevlar fibers with Nitinol fibers and then integrating them into a carbon/epoxy prepreg. The multifunctional structure was subjected to a Mach 2 air blast load using a shock tube apparatus. The embedded sensor yarns were used to record their electrical performance, while Digital Image Correlation captured full-field displacements, velocities, and strains. In addition, pressure transducers measured shock event pressures. The results revealed that through-thickness failure of the laminated composite occurred at approximately 2.5% strain, which was visually observable. However, the embedded sensor exhibited out-of-range electrical measurements at around 1.5% strain, even though no visible structural damage was present. This demonstrates the embedded sensing yarns’ ability to detect delamination-type failures by responding to interlaminate damage, highlighting their advantages over conventional external sensors. Similarly, the Gauge Factor for the fiber system was determined to be 1.89 ± 0.07. This multifunctional system shows great potential for enhancing composite structure safety and performance in high-performance aerospace applications and offering real-time structural health assessment.