A series of phenol-based and naphthol-based aralkyl epoxy resins were synthesized by the condensation of p-xylylene glycol with phenol, o-cresol, p-cresol, or 2-naphthol, respectively, followed by the epoxidation of the resulting aralkyl novolacs with epichlorohydrin. The incorporation of stable dispersed polysiloxane thermoplastic polyurethane particles in the synthesized epoxy resin＇s matrix was achieved via epoxy ring-opening with the isocyanate groups of urethane prepolymer to form an oxazolidone. The mechanical and dynamic viscoelastic properties of cured aralkyl novolac epoxy resins were investigated. A sea-island structure was observed in all cured rubber-modified epoxy networks via SEM. The results indicate that a naphthalene containing aralkyl epoxy resin has a low coefficient of thermal expansion, heat resistance, and low moisture absorption, whereas phenol aralkyl type epoxy resins are capable of imparting low elastic modulus result in a low stress matrix for encapsulation applications. Modification of the synthesized aralkyl epoxy resins with polysiloxane thermoplastic polyurethane have effectively reduced the stress of cured epoxy resins, whereas the glass transition temperature was increased because of the formation of the rigid oxazolidone structure.