Abstract: Toughened epoxy resin with good properties was produced by adding isocyanate-termi-nated prepolymer obtained from hydroxy-terminated butadiene-acrylonitrile copolymer and toluene diisocyanate into epoxy resin. Its dynamic mechanical properties measured by torsional braid method indicate that there are two peaks in the plot of logarithmic decrement △ against temperature above 0℃. The transmission electron micrographs show that they have two phase structures and the phase reversal occures while prepolymer content being 30 phr. This phenomenon was explained in terms of the curing of the resin.