Fiber bias effect on characterization of carbon fiber-reinforced polymer composites by nanoindentation testing has been investigated by computer modeling and validated by experiments. IM7/PEEK composite was selected as a case study material. Nanoindentation tests using Berkovich indenter were carried out on fiber longitudinal direction and in the near fiber region of the matrix to attempt to determine the nanomechanical properties of the fibers and the interphase. A 3D finite element analysis model for simulating nanoindentation was developed, taking into account the carbon fibers’ transversely isotropic properties. A fiber bias effect inducing a gradient in modulus in fiber–matrix interphase region was observed from tests and confirmed by modeling, and this property transition thickness induced by the fiber bias is about 1–2 µm depending on the indentation depth, which suggests an inherent difficulty when attempting to determine the true interphase properties experimentally using the nanoindentation testing.