This paper investigates the effect of transfer films on friction coefficient of polytetrafluoroethylene (PTFE)/polyetheretherketone (PEEK) composite. Friction experiments were carried out first to investigate transfer-film development during sliding contact of PTFE/PEEK composite with different PTFE volume fractions on a steel counterface. Quantitative relationships between PTFE/PEEK composite friction coefficient and constituent material mechanical properties are then established to facilitate the subsequent investigation of friction mechanisms and influence of transfer films on the composite friction. A micromechanics-based friction theory is developed for predicting PTFE/PEEK composite friction coefficient. The effect of transfer films on composite friction is accounted for based on two distinctly different mechanisms—one with solid-state film lubrication and the other with PTFE as a solid-state lubricant on the top surface of transfer films. The friction theory is first validated through the excellent agreement obtained between the theoretical predictions and the in-house experimental results on PTFE/PEEK composite with up to 20% PTFE (by volume). The validity of the theory is further demonstrated by comparing the theoretical predictions with the test data reported by other researchers in the literature.