Microencapsulation is a widely used method for making healing agents used in self-healing composites. In this study, a novel two-stage process was used to make double-walled microcapsules. Dicyclopentadiene–urea formaldehyde (DCPD–UF) microcapsules were synthesized by in situ polymerization of oil-in-water emulsion followed by siloxane coating through ‘sol–gel process’ (DCPD–UF–siloxane microcapsules). Average diameter of microcapsules, UF shell thickness and siloxane coating thickness were found to be 300, 1.4 and 16 µm, respectively. The effect of addition of microcapsules on rheological properties of epoxy was studied. Breaking pattern of single-walled and double-walled microcapsules immersed in epoxy was analyzed by continuous monitoring of the deformation behavior through a rheometer–microscope arrangement, confirming improved mechanical properties of the double-walled microcapsules. In this study, epoxy resin cast specimens with and without microcapsules were prepared and the effect of microcapsules on mechanical properties was examined. Epoxy specimens with double-walled microcapsules were found to be having improved mechanical properties compared to those with single-walled microcapsules. Finally, healing efficiency of DCPD–UF–siloxane microcapsules in epoxy was observed to be marginally higher, and therefore, this double-walled microcapsule system is shown to be a promising candidate for further self-healing composite investigations. © 2019, Central Institute of Plastics Engineering & Technology.