A novel approach to toughen epoxy resin with lignin, a common waste material from the pulp and paper industry, is presented in this article. First, carboxylic acid-functionalized alkali lignin (AL-COOH) was prepared and subsequently incorporated into anhydride-cured epoxy networks via a one-pot method. The results of mechanical tests show that covalent incorporation of rigid AL-COOH into epoxy networks can significantly toughen the epoxy matrix without deteriorating its tensile strength and modulus. The addition of 1.0 wt % AL-COOH gives increases of 68 and 164% in the critical stress intensity factor (K(IC)) and critical strain energy release rate (G(IC)), respectively, relative to that of neat epoxy. This article opens up the possibility of utilizing low-cost and renewable lignin feedstocks as effective toughening agents for thermoset polymers.