Organically modified montimorillonite nanoclay was added to the epoxy and E-glass-epoxy composites. The influence of nanoclay content (varied between 0 to 5wt %) on the relative crosslink density and the fracture toughness of the epoxy matrix was studied. Differential scanning calorimetry (DSC) indicated that the amino functional groups present on the nanoclay react with the epoxy matrix to increase the crosslink density of about 13 and 18% at 3 and 5wt% addition, respectively. The toughness of the epoxy composites increased by 25% at 3wt% addition of nanoclay, whereas, it decreases at 5wt%. Flexural strength and tensile strength of the E-glass-epoxy composites were found to increase by 12% and 11% respectively at 3wt% addition of nanoclay, while at 5wt% addition these properties decreased due to the matrix embrittlement. Interestingly matrix embrittlement is found to be beneficial in increasing the impact resistance due to spallation of embrittled matrix that ensures the dissipation of the impact energy. 5wt% nanoclay addition increases the impact strength by 29% and reduces the back face bulge of composite by 31%. These results may lead to the design and realization of glass-epoxy composites with better impact strength.