The electrorheological (ER) effect of urethane-modified polypropylene glycol (UPPG)/dimethylsiloxane (DMS) blends was investigated by rheological measurement and observation of the domain structure under shear flow. It was found that: (i) the cause of an ER effect is in close association with the domain composition under no electric field; the ER effect appears when UPPG forms droplets, while when it forms a continuous phase, the ER effect does not appear; (ii) UPPG droplets elongate and bridge between the electrodes when an electric field is applied and the bridges remain even under the shear; and (iii) the ER effect is positive in the case that the viscosity of UPPG is larger than that of DMS and negative in the case that the viscosity of UPPG is smaller than that of DMS. The cause of both positive and negative ER effects for UPPG/DMS blends is the connection of UPPG between electrodes under the electric field.