Epoxy resin and carbon fiber were used as the reinforcement to modify phenolic resin. Phenolic epoxy resin was prepared by physical blending, and carbon fiber was introduced into the resin matrix, and meanwhile the curing agent was added. The flame retardancy and thermal stability of the samples were evaluated, and the mechanical performance of the samples was characterized to investigate the overall performance. The flame retardancy of phenolic epoxy resin decreased slightly with epoxy resin of 5 wt%. The oxygen index was decreased by 6.3%, the ignition time was shortened by 66 s, and the peak heat release rate was increased by 8.9%. The tensile strength and elastic modulus were increased by 46% and 26.1%, respectively. The flame retardant and mechanical properties of phenolic epoxy resin were improved the most with short carbon fiber of 0.5 wt%. The oxygen index was increased by 4.6%, the ignition time was delayed by 35 s, the peak heat release rate was reduced by 18.9%, the carbon residue rate at 800℃ was increased by 60.4%, the apparent activation energy was increased by 11.3%, and the tensile strength and elastic modulus were improved by 90.4% and 87.9%, respectively.