N-Phenylmaleimide (PMI)-N-(p-hydroxy)phenylmaleimide (HPMI)-styrene (St) terpolymers (HPMS), containing pendant p-hydroxyphenyl (HP) groups, were prepared and used to improve the toughness of triglycidyl aminocresol epoxy resin cured with p,p’-diaminodiphenyl sulfone. HPMS was effective as a modifier for the toughening of the epoxy resin. When using 15 wt % of HPMS (1.0 mol % HP unit, M(w) 129,000), the fracture toughness (K-IC) for the modified resin increased 190% with a medium loss of flexural strength. The toughening of epoxies could be attained because of the cocontinuous phase structure of the modified resins. The decrease in flexural strength was suppressed to some extent by introducing a functional group into the modifier. The toughening mechanism was discussed in terms of the morphological behavior of the modified epoxy resin system.