The fracture resistance and mechanical properties of carbon fiber reinforced composites (CFRPs) containing organoclay-filled epoxy resin are studied. The XRD analysis and TEM examination revealed well-dispersed organoclay in the epoxy matrix displaying a mixture of exfoliation and intercalation. There was a significant improvement in flexural modulus and a marginal reduction in flexural strength of epoxy matrix due to the incorporation of organoclay. The quasi-static fracture toughness of epoxy increased nearly 60% with the addition of 3wt% clay, but there was a 45% drop in impact fracture toughness with 1wt% clay. When CFRPs were fabricated with the clay-modified epoxy resin, both the flexural modulus and strength of the hybrid composites showed negligible changes due to a few wt% of organoclay in the matrix. The interlaminar crack growth stability and the corresponding mode I interlaminar fracture toughness of the hybrid composites with organoclay improved substantially compared to those with carbon fibres only. The hybrid composites typically presented rough matrix surface associated with pinning and crack tip bifurcation, whereas the composite made from neat epoxy showed a smooth river line structure which is characteristic of brittle epoxy. The correlation between the composite interlaminar fracture properties and the toughness of modified matrix is discussed.