Damage initiation and growth as well as dynamic response of laminated polymer composite plates were investigated with the effect of Fluid-Structure Interaction (FSI) when they were subjected to impact loading.The E-glass composite plates were clamped along the boundaries and impact loading was applied from a specially designed vertical drop-impact testing machine while the plates were surrounded by either water or air.The damage and transient responses such as force-and strain-time history were measured during the progressive impact tests, and the test data collected from either impact in air or under water were compared to determine the effect of FSI. The study showed that FSI was generally detrimental to composite plates because of the hydrodynamic mass effect so that damage occurred at a lower impact force for the composite plate submerged in water. The strain measure also suggested that the FSI effect varied from location to location of the plate surface. Additionally, the FSI effect yielded a significant change in the strain response in terms of both magnitude and shape in time history for the plate in water along with progressive damage. In summary, it is essential to include the FSI effect for design and analysis of composite structures when they are in contact with water.