In this work, diglycidyl ether of bisphenol A based epoxy resin (DGEBA) was modified with varying amounts of two liquid rubbers: carboxyl terminated copolymer of butadiene and acrylonitrile (CTBN); and a hydroxyl terminated polybutadiene (HTPB), using an anhydride hardener. The ultimate aim of this study was to investigate the failure mechanism operating in the rubber-modified epoxies and to evaluate this by correlating these results with the miscibility and interfacial adhesion between the components and the morphology of the cured network. Some of the mechanical and fracture properties, which are associated with the two-phase particulate morphology, were investigated. The visoelastic behavior of modified epoxies was also analyzed and variations in the shift of T(g) values in toughened epoxies were explained. The samples were carefully analyzed by an acoustic emission technique to investigate the failure mechanism operating in them. From the response of force and number of acoustic events as well as from the amplitude of acoustic events, we were able to explain the failure mechanisms in the elastomer incorporated epoxy resins supplemented by morphological evidence. (C) Koninklijke Brill NV, Leiden, 2011