Hydroxyl-terminated poly (ether ether ketone) with pendent tert-butyl groups (PEEKTOH) synthesized from 4,4'-difluorobenzophenone and tert-butyl hydroquinone was blended with diglycidyl ether of bisphenol-A (DGEBA) epoxy resin. A diamine, 4,4'-diaminodiphenyl sulfone (DDS) was used as the curing agent The thermal and mechanical properties, fracture toughness, and morphology of the blends were investigated. Morphological analysis of the blends revealed a particulate structure with PEEKTOH phase dispersed in the epoxy matrix. Unlike classical polymer blend systems, increase in concentration of PEEKTOH does not increase the domain size. Instead, a decrease is obtained. The fracture toughness increased with the addition of oligomer without much decrease in tensile and flexural strengths. Addition of 15 phr oligomer gave maximum toughness. The dispersed PEEKTOH initiated several mechanisms that improved the fracture toughness of the blends. The cross-link density calculated from the storage modulus in the rubbery plateau region decreased with the increase in PEEKTOH. The thermal stability of epoxy resin remained unaffected even after blending with PEEKTOH.