Phenolic novolac was modified with hydroxyl terminated polybutadiene (HTPB) using resole as compatibilizer. These systems were characterized by differential scanning calorimetry, and IR analysis. Neat resin castings were prepared with varying percentages of HTPB. The fracture toughness of these systems was assessed by evaluating the critical stress intensity factor (K Ic ) using single-edge notch, threepoint bend specimens. The fracture behavior was characterized by scanning electron microscopy. These studies revealed that the fracture toughness of the phenolic novolac resin was improved by blending it with HTPB due to the formation of a heterogeneous phase with minute particles of elastomer, which arrests the propagation of cracks.