Polymer nanocomposites have been extensively investigated over the past two decades, resulting in a wide range of applications because of their excellent performance. Halloysite, a type of naturally occurring aluminosilicate, has attracted increasing interest in polymer nanocomposite applications, especially for the enhancement of mechanical properties owing to its tubular structure. Herein, we report a facile approach to achieve a high level of dispersion of halloysite nanotubes (HNTs) in epoxy by treating HNTs with a low concentration of sodium hydroxide (NaOH). The NaOH treatment resulted in the formation of hydroxyl groups on the surface of HNTs, leading to a much higher level of dispersion of HNTs in water, organic polar solvents, and epoxy matrix. The higher density of external silanol groups (Si–OH) of hydroxylated HNTs (h-HNTs) was confirmed by X-ray photoelectron spectroscopy (XPS) characterization. Such a higher level of dispersion and stronger interface led to simultaneous enhancement in both the stiffness and the toughness of epoxy/h-HNT nanocomposites. Systematic characterizations were performed to investigate the related stiffening and toughening mechanism. The implication of the present findings is discussed.