Abstract The incorporation of hydrothermal‐carbon‐coated halloysite clay nanotube (HNT/C) as a filler in continuous carbon fiber polymer‐matrix composite is reported. The HNT/C (0.9 vol% of the fiber composite) with 11.9 vol% carbon enhanced the flexural strength and storage modulus by 18% and 23%, respectively, and decreased the porosity from 4.4% to 0.9%. The strengthening is due to the reduced porosity, effective filler dispersion, and strengthened filler‐matrix bond resulting from the interaction between epoxy and the amine‐functionalized hydrothermal carbon. The filler addition increased the through‐thickness thermal conductivity by 149%. The ductility was unaffected. The glass transition temperature was decreased slightly.