<p>A novel steel–carbon fibre/polyetheretherketone (CF/PEEK) hybrid shaft is proposed, considering the thermal stability, negative coefficient of thermal expansion in fibre orientation, and high stiffness of CF/PEEK, which is expected to suppress the thermal deformation of shafts. A laser-assisted in-situ consolidation (LAC) process, together with its equipment, was developed to manufacture the hybrid shaft. Firstly, the optimal process parameters, including the laser-heated temperature and placement speed, were investigated. A maximum short-beam shear strength of 80.7 MPa was achieved when the laser-heated temperature was 500 °C and the placement speed was 100 mm/s. In addition, the failure modes and the effect of environmental temperature on the CF/PEEK samples were analyzed. Both interlayer cracks and inelastic deformation failure modes were observed. The formation and propagation of cracks were further investigated through digital image correlation (DIC). Furthermore, internal defects of the CF/PEEK sample were detected using X-ray tomography scans, and a minimum porosity of 0.23% was achieved with the optimal process parameters. Finally, two steel–CF/PEEK hybrid shafts, with different fibre orientations, were manufactured based on the optimal process parameters. The surface temperature distributions and thermal deformations were investigated using a self-established deformation/temperature measurement platform. The hybrid shaft showed an 85.7% reduction in radial displacement with hoop fibre orientation and an 11.5% reduction in axial displacement with cross fibre orientation compared with the steel shaft. The results indicate that the proposed method has great potential to improve the thermal stability of hybrid shafts and the accuracy of machine tools.</p>