Encapsulation is an effective method for enhancing the reaction to fire of timber structures. Mortar coatings are widely used to encapsulate traditional timber structures due to their excellent mechanical properties. However, there is a significant lack of data on the reaction to fire and fire mechanisms of timber structures with mortar encapsulation, and little is known about the influence of mortar composition on the burning characteristics of timber substrates. This study investigated the fire properties of organic–inorganic composite multilayer mortar coatings with fibre-reinforced layers commonly employed in encapsulating traditional Chinese wooden structures. The burning phases of timber encapsulated by multilayer mortar coatings were examined using thermogravimetric analysis and constant radiation ignition experiments. The fire propagation apparatus was used to measure the critical fire parameters of the encapsulated timber structures, including ignition time, heat release rate, total heat release, and time to peak heat release rate under a constant radiation heat flux of 30 kW/m2. Comparative experiments between finished and semi-finished coating encapsulated samples were conducted to investigate the influence of coating composition. The cracking behaviour of the coating was synchronously observed, with crack length analysis using image recognition techniques. It was found that the topcoat property of the coating mainly influenced the ignition time, and adding the fibre layer can effectively inhibit the bending of the timber substrate. Additionally, reducing the aggregate size may effectively prolong the time to reach the peak of the heat release rate. The relationship between the rise in heat release rate in encapsulation coatings, the appearance of surface cracks, and the maximum crack length with the heat release rate peak has been well established.