Clay-modified styrene-butadiene-styrene (SBS) rubber is utilized to toughen polypropylene (PP). The SBS rubber is found to have good compatibility with clay particles. SBS rubber helps to finely disperse clay particles in PP matrix. Mode-I fracture mechanisms are investigated using optical microscopy and transmission electron microscopy techniques. Rubber particle cavitation and matrix shear yielding are found to be the main toughening mechanisms in PP/SBS system. In the case of PP/SBS/clay system, widespread rubber particle cavitation, which appears to be facilitated by the presence of clay particle inclusions inside the SBS rubber particles, takes place in the PP matrix. This, in turn, leads to the formation of a bigger shear yielded zone in PP matrix. As a result, an enhanced toughness is observed.