Atomic force microscopy (AFM) is employed to Study the hydroxyl-terminated polybutadiene (HTBD) rubber-modified polybenzoxazine resin. The morphology exhibits a submicron phase separation when HTBD with low epoxy contents are used. No distinguishable phase separation appears in the blend modified with high epoxy content HTBD. The rubber and resin phases are identified by the change of nanoscale indentation as a function of external load imposed on the cantilever. The existence of an interphase between the glassy matrix and the rubbery domain is shown by comparing the pulling distances from force-distance (F-d) Curve measurements. The extent of rubber cavitation is investigated by the particle analysis on the fracture surface and is found to increase with the particle diameter. The amount of dissolved rubber, estimated by the Fox equation, increases with the rubber reactivity, and the data corroborates well with the observed morphology. (c) 2006 Wiley Periodicals, Inc.