Modification of polyacrylonitrile (PAN) fibers with cobaltous chloride has increased crystal size, crystallinity, and density, and also improved tensile strength and modulus of the resulting carbon fibers. In this study, the effect of cobaltous chloride modification on the physical properties, microstructure, and elemental composition of PAN fibers during the carbonization process was examined. The resultant carbon fibers developed from modified PAN fibers had a lower formation temperature of carbon basal planes than those fibers that developed from the original one. The modification process not only improved the tensile strength but also increased the tensile modulus by about 15% of the resulting carbon fibers at carbonization temperature of 1300 degrees C. A higher stacking size (L-c), or a greater carbon basal plane in crystalline, is one of the reasons to improve the modulus and conductivity of the final carbon fibers. The modification process also increased the electrical conductivity by about 15% at 1300 degrees C and by about 150% at 2500 degrees C.