The droplet size distribution during steady shearing of model polymer blends is examined in situ by optical microscopy. The volume-average steady-state droplet size during shear is essentially inversely proportional to shear rate, as expected. When the shear rate is increased suddenly, the droplets break up, through a process that involves the transient formation of threads, and rapidly establish a new steady state, comprising ellipsoidal droplets that are extended slightly in the direction of shear. When the shear is stopped, the droplets quickly relax to a spherical shape, but virtually no coalescence is observed, because neither Brownian nor buoyant forces are significant and the volume fraction of the dispersed phase is low. Slow shear, however, induces droplet collisions that lead to coalescence. The coalescence process is much slower than breakup. In contrast to some predictions, however, there is no permanent droplet size hysteresis. The steady-state size produced by breakup of initially larger droplets is eventually produced at large strain by coalescence of initially smaller droplets. The lack of permanent hysteresis has implications concerning appropriate mathematical models of coalescence behavior.