In this work, we employ atomic-scale simulations to uncover the interface-driven deformation mechanisms in biphase nanolayered composites. Two internal boundaries persist in these materials, the interlayer crystalline boundaries and intralayer biphase interfaces, and both have nanoscale dimensions. These internal surfaces are known to control the activation and motion of dislocations, and despite the fact that most of these materials bear both types of interfaces. From our calculations, we find that the first defect event, signifying yield, is controlled by the intralayer spacing (grain size, d), and not the intralayer biphase spacing (layer thickness, h). The interplay of two internal sizes leads to a very broad transition region from grain boundary sliding dominated flow, where the material is weak and insensitive to changes in h, to grain boundary dislocation emission and glide dominated flow, where the material is strong and sensitive to changes in h. Such a rich set of states and size effects are not seen in idealized materials with one of these internal surfaces removed. These findings provide some insight into how changes in h and d resulting from different synthesis processes can affect the strength of nanolayered materials.