A new type of toughened epoxy polymer based on epoxy cresol novolac resin (ECN) and carboxy terminated polybutadiene (CTPB) liquid functional rubber has been studied. ECN has been synthesized in the laboratory and CTPB used was also of indigenised origin. Rubber modified epoxies were characterized with the help of differential scanning calorimetry (DSC), dynamic mechanical analysis (DMA) and scanning electron microscopy (SEM) techniques.