Fatigue fracture of fiber-reinforced polymer composites (FRP) occurs when microcracks are induced by debonding, pull-out and delamination at the interface between the matrix and fiber. This microcrack area increases with increase in fatigue cycles and a damage region is formed. In our previous paper, fatigue life of a short fiber-reinforced polymer composite consisting of glass fibers and polycarbonate matrix was found to be related not to the main crack growth behavior but to the progression behavior of the damage region. In this paper, using our proposed real time observational system, we performed detailed observations on the behavior of fatigue damage and clarified the mechanism of damage progression. Furthermore, mechanical considerations were performed by finite-element elastic-plastic stress analysis. The results mentioned above indicate that control of short fiber alignment makes it possible to release the stress concentration caused in the matrix, and disperse fatigue damage. This results in an enormous improvement in fracture toughness.