Modern factory automation is enabling the economic production of timber building components with sophisticated integral mechanical joints. This paper investigates the governing compressive failure mechanisms of full-length integrally-jointed plywood box columns, and in particular seeks to understand the interaction between localized material knot defects, integral box joint capacity, and column strength. A new critical failure mechanism is identified based on experimental observations and numerical analysis of sections with varying sizes of knot defect, with column capacity governed by defect-induced transverse loading of integral box joints. Column capacity was shown to improve with localized joint strengthening in knot-defective regions, or with a defect-adaptive fabrication procedure that avoids identified defects during component plate machining. The new failure mechanism was also combined with prior understanding of plate buckling and pop-off failure mechanisms to propose an overall failure process for integrally-jointed plywood columns. Results from this paper can also inform development of other types of integrally-jointed thin-walled structures.