Telechelic extended perfluoroether oligomers containing carboxylic acid terminal groups were found to be miscible in mixtures of a tetrafunctional epoxy resin (TGDDM) and methyl nadic anhydride. After curing the resin system remained transparent. SAXS examination revealed the presence of a two-phase morphology with domains of the order of 16-17 nm. The glass transition of the cured resin system showed a maximum at perfluoroether concentrations in the region of 5% and remained at about the same level as the unmodified system at concentrations as high as 20 wt %. The critical strain energy release rate (Gc) for these systems was found to increase very rapidly in the region of 5 to 15 wt % fluoroligomer to reach values about 8 times higher than those obtained for the control resin system. This was accompanied by a small reduction in modulus and yield strength. The main reason for the enhanced toughness, however, is attributed to the increased size of the yield zone at the crack tip. The fluoroligomer modified cured resin systems exhibited an unusual change in water diffusion characteristics. At about 15 wt % concentration of fluoroligomer modifier the diffusion coefficient increased by a factor of 70, while the equilibrium water absorption was reduced by more than 10 wt %.