Abstract: A liquid carboxyl terminated nitrile rubber (CTBN) was epoxidized by formic acid and hydrogen peroxide, and the epoxidized CTBN (ECTBN) with different epoxidation degrees was used to toughen epoxy resin. The factors affecting the epoxidation reaction were extensively studied, and the optimum conditions were determined. CTBN/epoxy and ECTBN/epoxy blends were prepared using piperidine as curing agent. The morphology of the blends was observed by scanning electron microscopy and transmission electron microscopy, and it showed that CTBN particles dispersed in the matrix in micro scale, whereas the ECTBN particles dispersed in nano scale. The tensile and impact properties of these blends were measured and compared, and it was indicated that ECTBN/epoxy blends exhibited better balance properties. Epoxy resin modified by ECTBN show similar impact property with those by CTBN which both are much better than unmodified one, while its Young’s modulus and tensile strength are much higher than those of CTBN modified epoxy resin. Upon increasing the epoxidation degree of ECTBN, both the strength and modulus of modified epoxy resions are enhanced.