Herein we report a novel approach to toughen epoxy thermosets using a block ionomer, i.e., sulfonated polystyrene-block-poly(ethylene-co-butylene)-block- polystyrene (SSEBS). SSEBS was synthesized by sulfonation of SEBS with 67 wt % polystyrene (PS). Phase morphology of the epoxy/SSEBS blends can be controlled at either nanometer or micrometer scale by simply adjusting the sulfonation degree of SSEBS. It has been found that there exists a critical degree of sulfonation (10.8 mol %) forming nanostructures in these epoxy/SSEBS blends. Above this critical value, macrophase separation can be avoided and only microphase separation occurs, yielding transparent nanostructured blends. All epoxy/SSEBS blends display increased fracture toughness compared to neat epoxy. But the toughening efficiency varies with the phase domain size, and their correlation has been established over a broad range of length scales from nanometers to a few micrometers. In the nanostructured blends with SSEBS of high sulfonation degrees, the fracture toughness decreases with decreasing size of the phase domains. In the macrophase-separated blends, only a slight improvement in toughness can be obtained with SSEBS of low sulfonation degrees. The epoxy blend with submicrometer phase domains in the range 0.05-1.0 μm containing SSEBS of a moderate degree of sulfonation (5.8 mol %) displays the maximum toughness. This study has clearly clarified the role of phase domain size on toughening efficiency in epoxy thermosets.