We investigated the role of graphene interfaces in strengthening and toughening of the Cu-graphene nanocomposite by a combination of in situ transmission electron microscopy (TEM) deformation and molecular dynamics (MD) simulations. In situ TEM directly showed that dislocation plasticity is strongly confined within single Cu grains by the graphene interfaces and grain boundaries. The weak Cu-graphene interfacial bonding induces stress decoupling, which results in independent plastic deformation of each Cu layer. As confirmed by the MD simulation, the localized deformation made by such constrained dislocation plasticity results in the nucleation and growth of voids at the graphene interface, which acts as a precursor for crack. The graphene interfaces also effectively block crack propagation promoted by easy delamination of Cu layers dissipating the elastic strain energy. The toughening mechanisms revealed by the present study will provide valuable insights into the optimization of the mechanical properties of metal–graphene nanolayered composites.