This paper studies the strain sensing behavior and its mechanisms of polypyrrole (PPy)-coated Lycra/Nylon knitted fabric. Firstly, the sensing behavior of PPy-coated knitted fabric under cyclic tension is investigated. The results show the efficiency of developed conductive fabric in sensing strain of a structure under simple tension or cyclic tension. Then, the sensing mechanisms are thoroughly analyzed, based on the experimental observation on deformation characteristics of knitted fabric. The deformation process of knitted fabric is identified as four stages, i.e., yarn slippage, change of contacted fibers, bending of yarns, as well as elongation of yarns. It is found that the electrical resistance varies differently in the four stages, and the micro-cracks of the coating surface during fiber extension contributes most to the resistance variation of the fabric among the four deformation stages. Finally, the sensing behavior of the conductive fabric is qualitatively described as a function of tensile strain.