The main objective of the present work was to study the mechanism of toughening in cyclic olefin copolymer (COC)/ ethylene butene-1 copolymer (EBC) blend system. An attempt was also made to understand the role of nanoclay on morphology, in particular, rubber particle size and its impact on the toughening enhancement. The blend samples with different blend ratio and the hybrid nanocomposite samples varying in nanoclay content prepared by melt compounding were considered. Results of the impact test along with SEM results showed that the extent of toughening enhancement was strongly governed by the rubber particle size so that an optimum particle size with maximum toughness could be achieved at rubber concentration range of 10-15% wt. Furthermore by comparing these results with those reported for other rubber toughened systems, we came to conclusion that in the case of the present sample the cavitation of the rubber particle followed by massive shear yielding of the matrix is dominant toughening mechanism. It was also found that while the presence of nanoclay tactoids and or pletlat in COC matrix had strong effect on reducing the rubber particle size, they did not have an appreciable enhancing effect on impact strength of COC/EBC blends system.