The present study investigates the failure mechanism of nitrate ester plasticized polyester (NEPE) propellant subjected to uniaxial compression using microstructural analysis. The tests were conducted at room temperature and at 1, 50, and 10 × 10<sup>2</sup> mm/min displacement rates. The specimens were loaded up to different displacements corresponding to different compression stages and then interrupted/stopped, followed by unloading. Subsequently, micrographs of the surface and cross section of the specimen were studied using a scanning electron microscope (SEM) and energy dispersion spectroscopy (EDS) to understand the microstructural changes associated with corresponding deformation. The three stages of nonlinear behavior/damage beyond the initial linear region were chosen based on the true stress-strain response of the propellant. It was observed that the damage evolution is accelerated with an increase in displacement rate since the matrix has less time to rearrange itself. In stage 1 (yielding), debonding (indicating damage initiation) was observed at 50 mm/min, and debonding accompanied by cavities was observed at 10 × 10<sup>2</sup> mm/min, while there was no observable debonding at 1 mm/min. At the other end, in stage 3 (strain-hardening), while only cavities and debonding were observed at 1 mm/min and 50 mm/min, ammonium perchlorate (AP) particle breaking and void formation were observed at 10 × 10<sup>2</sup> mm/min, thus indicating more severe damage. EDS mapping was used to identify AP and aluminum particles. SEM observations indicate that AP particles exhibited debonding while aluminum particles remained firmly attached, across all stages.