Gravimetric and dielectric measurements of water uptake by a series of carboxy terminated butadiene acrylonitrile (CTBN) -amine cured epoxy resin systems are reported. The amount of water absorbed and rate of diffusion increases up to approximately 15 w/w% CTBN content. Anomalous behaviour is observed around a composition of approximately 20% CTBN which is coincident with the occurrence of a co-continuous phase structure in the resin. Dynamic mechanical analysis and atomic force microscopy studies provide evidence for phase separation and inversion of phase structure at 20% CTBN. The increase in the water uptake with increasing CTBN content reflects the ability of the highly polar acrylonitrile group to bind water. The general increase in the diffusion coefficient is consistent with CTBN being initially dispersed in the epoxy matrix tending to a lowering of the effective segment density inhibiting mobility of the water molecules. In the co-continuous region subtle effects of mutual solubility of components and generation of a long percolation path leads to the observed anomalous behaviour, Dynamic mechanical thermal analysis (DMTA) indicated that water absorption suprisingly leads to an increase in the glass transition temperature and is associated with a densification of the matrix structure. Atomic force microscopy measurements reveal that the surface roughness changes with composition with a marked increase in the surface roughness at 20% CTBN.