This thesis presents a technique used to stochastically estimate the location of hidden discontinuities in carbon fiber composite materials. Composites pose a challenge to signal processing because speckle noise, as a result of reflections from impregnated laminas, masks useful information and impedes detection of hidden discontinuities. Although digital signal processing techniques have been exploited to lessen speckle noise and help to localize discontinuities, uncertainty in ultrasonic wave propagation and broadband frequency based inspections of composites still make it a difficult task. The technique proposed in this thesis estimates the location of hidden discontinuities stochastically in one- and two-dimensions based on statistical data of A-Scans and C-Scans. Multiple experiments have been performed on carbon fiber reinforced plastics including artificial delaminations and porosity at different depths in the thickness of material. A probabilistic approach, which precisely localizes discontinuities in high and low amplitude signals, has been used to present this method. Compared to conventional techniques the proposed technique offers a more reliable package, with the ability to detect discontinuities in signals with lower intensities by utilizing the repetitive amplitudes in multiple sensor observations obtained from one-dimensional A-Scans or two-dimensional C-Scan data sets. The thesis presents the methodology encompassing the proposed technique and the implementation of a system to process real ultrasonic signals and images for effective discontinuity detection and localization.