The effect of water absorption on the stress transferability across E-glass fiber/nylon 6 interface has been studied using the embedded single fiber composite technique. The behavior of silane coated fiber and untreated fiber composites after periods of water immersion were compared. The silane coating provided both higher interfacial shear stress transferability and protection from permanent water damage in the interphase region. It was found that water absorption in the nylon matrix reduced the shear stress transferability through plasticization of the matrix, weakening of the interface, and the development of tensile swelling stresses at the phase boundaries. In untreated materials the shear stress transferability was limited by decoupling of the matrix from the broken fiber ends by either interface slippage or local plane strain fracture in the interphase region near the fiber end. In the silane treated materials the shear stress transferability was limited by constrained yielding of the polysiloxane/nylon interphase at the fiber end, thus indicating plasticization of the matrix was the primary factor. After 20 days of water immersion, there was permanent deterioration of stress transferability in the untreated samples, but very little permanent damage in the treated samples.