The reactive compatibilization of polystyrene/ethylene--octene copolymer (PS/POE) blend via Friedel-Crafts alkylation reaction was investigated by rheology and electron microscope. It was found that the graft copolymer formed from interfacial reaction reduced the domain size and decreased the coarsening rate of morphology. The reduction of the interfacial tension is very limited according to the mean field theory even assuming that all block copolymer stays on the interface. With the help of self-consistent field theory and rheological constitutive models, the distribution of graft copolymer was successfully estimated. It was found that large amount of copolymer had detached from the interfaces and formed micelles in the matrix. Both the block copolymer micelles in matrix and the block copolymers at the interface contribute to the suppression of coarsening in polymer blend, but play their roles at different stages of droplet coalescence. In droplet morphology, the micelles mainly hinder the approaching of droplets. (c) 2014 American Institute of Chemical Engineers AIChE J, 61: 285-295, 2015