Epoxy-based nanocomposites were prepared with natural nanotubes from halloysite, a clay mineral with the empirical formula Al2Si2O5(OH)(4). The morphology of the nanotubes was examined by scanning electron microscopy (SEM) and transmission electron microscopy (TEM) and was found geometrically similar to multi-walled carbon nanotubes. The thermal and mechanical properties of the nanocomposites were characterized by thermogravimetric analysis, dynamic mechanical analysis, Charpy impact and three-point bending tests. The results demonstrated that blending epoxy with 2.3 wt% halloysite nanotubes increased the impact strength by 4 times without scarifying flexural modulus, strength and thermal stability. Unique toughening mechanisms for this improvement were investigated and discussed. It was proposed that impact energy was dissipated via the formation of damage zones with a large number of micro-cracks in front of the main crack. The micro-cracks were stabilized by nanotube bridging. Nanotube bridging, pull-out and breaking were also observed and proposed as the major energy dissipating events. The findings of this work suggest that halloysite nanotube may be an effective impact modifier for epoxy and other brittle polymers. (c) 2007 Elsevier Ltd. All rights reserved.