Homogeneous and inhomogeneous phenoxy/epoxy blends can be prepared by kinetic control of the curing rate. Spinodal decomposition is the dominant phase separation mechanism of the inhomogeneous blends. A considerable fraction of the added phenoxy is dissolved in the epoxy matrix of each inhomogeneous blend and the intrinsic properties of the epoxy matrix are chan ed in the blend. The intrinsic toughness of the epoxy increases on increasing the amount of dissolved phenoxy. The homogeneous blend that has the highest content of dissolved phenoxy also possesses the highest fracture toughness. A crack-blunting mechanism, namely a localized shear plastic deformation around the crack tip region prior to the onset of crack growth, has been used to explain the fracture behaviour seen in this study. The degree of blunting caused by shear yielding is the most important factor in controlling the subsequent mode of crack growth and the fracture toughness.