The effects of small concentrations of poly(ethylene terephthalate) (PET) particles on the failure of poly(vinyl chloride) blended with a (methacrylate-butadiene-styrene) impact modifier (PVC/MBS) were studied. The failure processes arising from isolated and interacting particles were observed in situ in the optical microscope during tensile deformation. At low PET content (< 0.5%), voids grew around individual particles without particle-particle interaction. Subsequently, a stable neck developed, and the material experienced relatively large deformation before fracture. With increasing PET content and increasing particle size, particle-particle interactions were observed. At higher PET content (greater-than-or-equal-to 1%), the neck was not stable and fracture occurred during neck formation. Materials with larger particles exhibited neck instability and fracture at lower PET content.