Composability in DeFi refers to the ability of different protocols to interact and combine seamlessly to create more complex financial products. It allows developers to build on top of existing protocols, creating a "money legos" ecosystem where services like lending, borrowing, and yield farming can be stacked together. This interoperability fosters innovation by enabling users to create customized financial strategies without reinventing the wheel. However, it also means that a failure in one protocol can have cascading effects, making security and audits crucial in composable systems.