Melamine formaldehyde (MF) resin is a thermosetting polymer with superior flame retardancy and high thermal stability and is widely used in fire-retardant coatings, flame-retardant sheets, heat-resistant filter materials, and so on. However, its further application is restricted by its extreme brittleness and poor impact strength. In this article, polyvinyl alcohol (PVA), a water-soluble polymer with high toughness and elasticity, which can be well blended with MF prepolymer in hot water, was used to improve the toughness of MF resin. The nano-silicon dioxide (SiO2) particles modified by KH-550 were used to improve the compatibility between MF prepolymer and PVA. Moreover, the modified nano-SiO2 can simultaneously enhance the toughness and impact the strength of MF resin. The interaction of components, fractography, thermal stability, flame retardancy, and mechanical properties of the modified MF resin was studied systematically. Fourier transform infrared results indicate that KH-550 was successfully grafted onto the surface of nano-SiO2. The grafted nano-SiO2 shows better dispersion in the matrix than the unmodified one, furthermore improving the compatibility and interface adhesion between MF and PVA. When PVA content is 20%, the obtained material has good thermal stability ( T max > 350°C), flame-retardant properties (UL-94 V-0 rating and limited oxygen index = 42%), and toughness (elongation at break > 20% and unnotched impact strength > 13 kJ m−2).