A stable dispersion of polysiloxane thermoplastic polyurethane (TPU) particles in an epoxy resin matrix was achieved via the epoxy ring opening with isocyanate groups of urethane prepolymer to form an oxazolidone. The effect of structure and molecular weight (MW) of polysiloxane TPU in reducing the stress of electronic encapsulant were investigated. The mechanical and dynamic viscoelastic properties of polysiloxane TPU modified epoxy networks were also studied. A "sea-island" structure was observed via SEM. The devices encapsulated by the TPU-modified EMC were also evaluated by the thermal shock cycling test. The dispersed polysiloxane TPU rubbers effectively reduce the stress of cured epoxy resins by reducing flexural modulus and the coefficient of thermal expansion (CTE), while the glass transition temperature (Tg) is increased because of rigid oxazolidone structure formation.