We have found that lightly cross-linked neutral hydrogels containing microgels of densely cross-linked polyelectrolyte show high strength and toughness. These kinds of hydrogels, named as microgel-reinforced (MR) hydrogels, are a two-phase composite, where the disperse phase is the microgel with the double network (DN) structure and the continuous phase is the soft neutral gel matrix. The brittle polyelectrolyte network of the DN microgels, though in disperse phase, also serves as sacrificial bonds to toughen the material, similar to conventional DN gels. In this paper, we study the internal fracture process of the MR gel under uniaxial tension. The tensile stress-strain curve of the MR gel is charaterized by four regions according to its differential curve: elastic region (0 < epsilon < 1), preyielding region (1 < epsilon < 3), yielding region (3 < epsilon < 7), and strain hardening region (epsilon > 7). The morphology change of microgels in the reswollen MR gels after prestretching tells that the internal fracture of microgels, which occurs beyond the elastic region (epsilon > 1), is anisotropic. That is, the short chains in the tensile direction fracture first (1 < epsilon < 3); at large stretching, both the long chains in the tensile direction and the short chains in the transverse direction fracture (3 < epsilon < 7), followed by the fracture of the long chains in the transverse direction (epsilon > 7). These anisotropic fracture behaviors are in similar to bulk DN gels. Moreover, at each stage of the tensile process, large microgels always fracture prior to small ones and own higher fracture efficiency in the chain rupture than the smaller ones. This size effect is attributed to the stress concentration effect around the two poles of large microgels induced by the close distance from their neighboring microgels.