Phenolic novolac resin was modified with nitrile rubber (NBR) using resol as compatibilizer. These systems were characterized by differential scanning calorimetry, flexural and impact strength. The resin was prepared by varying percentage of NBR. The curing behavior of unmodified and NBR-modified phenolic resin has been studied. The results reveal that the exothermic heat of cure for NBR-modified system increases due to the participation of the double bond of butadiene. In addition, the impact strength and flexural strain increase with increasing percentage of NBR in the phenolic resin matrix.