We have developed an amino-functional silicone resin to toughen epoxies which, when prereacted with the epoxy function in resins, undergoes in-situ phase separation during final epoxy curing. SEM analyses of the morphology of fracture surfaces of MY720- DDS, Epon 828-DDS and other epoxy matrices modified with the silicone resin showed rough surfaces with the formation of very uniform <10 μm spheres. Silicon and sulfur elemental distribution mapping showed silicon rich spheres embedded in an epoxy matrix. We report cavitation, particle debonding and pull-out, and an increases in fracture surface area as possible modes of toughening. Silicone modified materials give improvements in slow strain rate G1c fracture toughness measurements of 250–400%, similar to carboxy terminated polybutadiene-acrylonitrile copolymer (CTBN) modifiers, but with a much smaller flexural modulus loss. The Tg of the modified epoxy matrices are maintained, moisture resistance is improved, and flammability is reduced.