Combining two types of reinforcement fiber in a common matrix may lead to different failure modes such as micro-cracks between the layers when the structure is subjected to lower stress levels. Real-time damage detection should be integrated into the hybrid composite structure to provide structural integrity and mitigate this problem. This paper outlines the working mechanisms and the fabrication of an integrated capacitive sensor in an intra-ply hybrid composite (2 × 2 twill weave). Uniaxial tensile and flexural tests were conducted to characterize the proposed sensor and provide self-sensing functionality (smart structure). The sensitivity and repeatability of the capacitive sensor were measured to be around 1.3 and 185 µΔC/Co, respectively. The results illustrate that onset of damage between layers can be detected by in situ monitoring. It can be seen that the initial damage was detected at the turning point where the relative change in capacitance begins to reduce while the load increases. Finite element modeling was also constructed to analyze the test results and explain the reasons behind the turning point. It was shown that the carbon yarns experienced high transverse shear stress (τ_xz) in the crimp region, leading to inter-fiber cracks.