A novel approach for toughening thermosetting epoxy matrices using both thermoplastics and liquid reactive rubbers as modifiers has been investigated. The network structure of the modified epoxy systems was characterized using dynamic mechanical analysis, and the morphology of the multiphase structure was examined using scanning electron microscopy (SEM). To investigate the continuity of the phase domains, the constituents in the phase domains were positively identified using solving etching and RuO4 staining techniques for transmission electron microscopy (TEM). The fracture toughness of the modified and basic epoxy samples was measured using compact tension (CT) specimens. Quite limited toughness improvement was achieved for the epoxy modified with only the PSu thermoplastic, or the liquid rubber by itself. However, the fracture toughness was found to increase dramatically when a proper combination of both the liquid reactive rubber and thermoplastic was simultaneously incorporated into the epoxy. Toughening by using dual modifiers resulted in maximum improvement of fracture toughness with minimal compromises in processability and T-g depression by rubbers.