The major challenges facing engineers while fabricating high precision components from carbon fiber reinforced polymers (CFRP) especially when using an abrasive waterjet (AWJ) include the predominant interlaminar delamination and tapered kerfs. Therefore, in the present work, a comprehensive 3-D transient fluid-structure interaction (FSI) model is developed and numerically simulated to investigate mechanisms leading to delamination and hole-geometric defects while drilling autoclave cured aerospace grade multidirectional CFRP laminates. The FSI model comprised a two-way interaction between the computational fluid dynamics (CFD) flow model and structural finite element (FE) model. The CFD model explored the dynamic jet characteristics while impinging the anisotropic CFRP surface. The resulting forces from the CFD domain acted as loads in the transient FE model to predict the initiation of cracks and delamination. Subsequently, extensive experiments were conducted to validate the proposed numerical model. The results illustrated that during abrasive waterjet drilling of CFRP, delamination was initiated by the hydraulic impact as the abrasive waterjet penetrated the workpiece. Additionally, the study revealed that an increase in abrasive waterjet pressure and abrasive particle size resulted in a higher inter-ply debonding and crack propagation. Correspondingly, an increase in the standoff distance (SoD) resulted in reduced crack propagation and delamination. Further, the liquid-solid interface exhibited asymmetric cracks. The present findings not only provide requisite guidelines to achieving high-precision drilling of multidirectional CFRP but also provide technical guidelines to improving the performance characteristics of the abrasive waterjet machining (AWJM) process.