Polyacrylonitrile (PAN)/ carbon nanotube (CNT) composite fibers have been processed using solution spinning. All types of fibers containing carbon nanotubes result in improved mechanical property fibers. Gel spun fibers also result in single wall carbon nanotube exfoliation. PAN in the immediate vicinity of single wall carbon nanotube exhibit higher order than PAN farther from nanotube, suggesting a distinct interphase region. Carbonized PAN/SWNT fibers exhibited 10 to 30 nm diameter fibrils embedded in brittle carbon matrix, while the control PAN carbonized under the same conditions exhibited brittle fracture with no fibrils. High resolution transmission electron microscopy and Raman spectroscopy suggests the existence of well developed graphitic regions in carbonized PAN/SWNT and mostly disordered carbon in carbonized PAN. The addition of 1 wt% carbon nanotubes enhanced the carbon fiber modulus by 49% and strength by 64%, respectively.