The free edge effect is well understood at the laminate and lamina scale. The influence of the microstructure on micro-scale stresses and free edge cracking, however, is less known. This work aims at a better understanding of the effect of microscopic features on micro-scale stresses and the tendency of initial micro-cracking at the laminate free edge. To this end, a two-scale finite element (FE) modelling approach is developed. It consists of a meso-scale model to capture the laminate stacking sequence and the global stress field under a given loading condition, and a micro-scale model to predict the local constituent level stresses at the free edge. The two models were coupled one-way through a strain localization rule. A procedure to determine the boundary conditions for micro-scale FE models containing a free edge was proposed. The model was used to examine the 90/90 interface in [25N/−25N/90N]S IM7/8552 carbon/epoxy composite laminates. The effects of thermal and tensile loading were investigated independently to understand the influence of the interlaminar microstructure on micro-scale stresses at free edges during manufacture and under mechanical loading. The results agreed with the trend of free edge pre-cracks and progressive damage observed in experiments.