The phase morphology developing in immiscible poly(styrene-co-acrylonitrile) (SAN)/ethylene-propylene-diene monomer (EPDM) blends was studied with an in situ reactively generated SAN-g-EPDM compatibilizer through the introduction of a suitably chosen polymer additive (maleic anhydride) and 2,5-dimethyl-2,5-di-(t-butyl peroxy) hexane (Luperox) and dicumyl peroxide as initiators during melt blending. Special attention was paid to the experimental conditions required for changing the droplet morphology for the dispersed phase. Two different mixing sequences (simple and two-step) were used. The product of two-step blending was a major phase surrounded by rubber particles; these rubber particles contained the occluded matrix phase. Depending on the mixing sequence, this particular phase morphology could be forced or could occur spontaneously. The composition was stabilized by the formation of the SAN-g-EPDM copolymer between the elastomer and addition polymer, which was characterized with Fourier transform infrared. As for the two initiators, the blends with Luperox showed better mechanical properties. Scanning electron microscopy studies revealed good compatibility for the SAN/EPDM blends produced by two-step blending with this initiator. Dynamic mechanical thermal analysis studies showed that the two-step-prepared blend with Luperox had the best compatibility. (C) 2010 Wiley Periodicals, Inc. J Appl Polym Sci 119: 1417-1425, 2011