Dynamic crack propagation assessment in functionally graded materials (FGMs) with micro-cracks is accomplished using bond-based Peridynamics (PD). The dynamic fracture behaviour of various FGMs' material models is studied in Kalthoff-Winkler experiment. Dynamic crack growth predictions and associated material damage of the specimen under dynamic loading conditions are considered. The effect of micro-cracks near macro-crack tips on the toughening mechanism is evaluated in terms of crack propagation velocities. Stochastically pre-located micro-cracks are modelled to obtain the toughening effect in the material. In addition, the velocities and time required for fracture are compared in different FGM cases. It is frankly found that if a crack propagates in the harder region of the specimen, velocities decrease and toughness increase in contrast to the softer region. Furthermore, micro-cracks around a macro-crack decelerate the crack propagation and enhance toughening mechanism in FGM body depending on gradation of material properties.