Epoxy-clay nanocomposites were prepared using two types of surface-treated montmorillonite (Closite 30B and Nanomer I28E). Wide angle X-ray scattering showed that all the nanocomposites had an intercalated structure. Improvements in tensile and fracture properties were found. The pure epoxy polymer was very brittle with a fracture energy, G(c), of 131 J m(-2). The addition of the nanoclays significantly increased the value of G(c), up to 240 J m(-2) for 5 wt% C30B. The toughening mechanisms acting in the nanocomposites were identified using scanning electron microscopy as crack deflection and plastic deformation of the epoxy matrix around the clay platelets following debonding. From electrical testing, the permittivity and loss angle of the nanocomposites decreased, and their breakdown strength increased as desired for insulation applications. The breakdown strength of the pure epoxy was found to be 11.7 kV mm(-1), while for a 2 wt% C30B nanocomposite, it increased to 14.7 kV mm(-1). It was concluded that the restriction of chain mobility inhibited electrical polarisation and thus decreased the permittivity and loss angle. The electrical damage zone was analysed using scanning electron microscopy. It was found that the higher resistance-to-surface degradation by partial discharges and the creation of a tortuous electrical path, which delayed the propagation of the electrical tree, were the main factors which improved the breakdown strengths of the nanocomposites.