The microscopic damage and fracture mechanism of an aluminum matrix composite, TiB2 particle reinforced 2024-T4 alloy synthesized through a mixed salt reaction, was investigated via in situ tension test monitored by scanning electron microscopy (SEM). The material fracture behavior can be separated into three stages, i.e. the nucleation, accumulation and coalescence of micro-cracks. The primary micro-cracks firstly initiate in by-product particles, micron-sized TiB2 particles and TiB2 particle clusters. With the increasing load, more micro-cracks appear in the region of TiB2 particle segregation band. Finally, the macro-cracks are formed as the consequence of the coalescence of micro-cracks through the Al matrix of particle sparse region in between, leading to the instant fracture of the material. Based on the analysis of the unit cell finite element model, the effect of particle segregation action on the initiation of micro-cracks in the Al matrix within particle segregation band was studied. The numerical results showed that the particle segregation enhances the maximum equivalent plastic strain and stress triaxiality in the Al matrix, which will facilitate the growth and coalescence of micro voids and results in the nucleation of premature micro-cracks, just as those observed in the tests.