A method and system for forming composite yarns having selected performance characteristics including cut resistance and/or fire/heat resistance. The composite yarn will include a core of one or more filaments and a fiber bundle wrapped about the core and integrated with one or more additional filaments that help bind the fibers about the core. An additional filament or other composite yarn can be plied together therewith to form the finished composite yarn. The core filament(s) will be selected from cut and/or fire/heat resistant materials, while the fibers of the fiber bundle and the additional filament(s) wrapped about the core can be selected from natural or synthetic fibers or filaments having additional desired properties.