Morphology and fracture mechanisms in two nanoclay-filled epoxy systems were investigated using both microscopy and spectroscopy tools. Clay exfoliation was achieved using a series of sample preparation steps, and confirmed using wide angle X-ray diffraction (XRD) and transmission electron microscopy (TEM) techniques. Significant improvement in modulus was obtained when clay exfoliation was achieved. Incorporation of core-shell rubber (CSR) in both clay-filled epoxy systems leads to greatly enhanced fracture toughness. Optical microscopy and TEM observations of the CSR-modified nanocomposites suggest that CSR cavitation, shear yielding of the matrix, clay layer delamination, CSR bridging, crack bifurcation, and crack deflection are among the operative toughening mechanisms observed, depending on the nature of the epoxy matrix utilized.