In this work, we explain why the incorporation of organically modified nano-clay into unsaturated polyester resins, unlike epoxy, does not improve their fracture toughness despite continuing aggressive research activities based on this approach. The mechanism behind this phenomenon is explored by studying the effect of mixing method on improving the degree of exfoliation in simple nanocomposites and its final effect on fracture behaviour. Rheometry and X-ray diffraction show that the two mixing methods lead to different degrees of exfoliation. The mechanical properties primarily depend on clay content and are less sensitive to degree of exfoliation. In the case of toughness, there is no observable effect of degree of exfoliation. This despite the increased fracture surface area evident in SEM images of the sample with finer exfoliation as compared with those of the sample with a lower degree of exfoliation. Dispersed silicate layers influence the toughness by increasing the tortuosity of the crack path locally while micron scale intercalated tactoids can result in crack deflection. Both of these mechanisms depend on localized plasticity for significant energy dissipation. Since unsaturated polyester has very low localized plasticity below approximate to 90 degrees C, one cannot significantly improve its room temperature toughness by manipulating the micro-/nanostructure of the nanocomposite the nanocomposite without incorporating another material. This new understanding of the fracture behavior of unsaturated polyesters and their nanocomposites allows for the development of more complex toughened systems. POLYM. ENG. SCI., 55:1303-1309, 2015. (c) 2015 Society of Plastics Engineers