Deformation of polycarbonate (PC) impact-modified with a core-shell rubber (MBS) was examined at the microscale and nanoscale. The stress-whitened zone (SWZ) that formed ahead of a semicircular notch was sectioned and examined in an optical microscope and transmission electron microscope. At the microscale, the texture of the SWZ consisted of fine shear lines that formed when cavitation of the rubber particles relieved triaxiality and enabled the PC matrix in the SWZ to deform in shear. Examination of thin sections from the SWZ in the transmission electron microscope revealed nanoscale deformation of the rubber particles. When the particle concentration was low (2%), only random cavitation of rubber particles was observed. At higher particle concentrations (5 and 10%), cooperative cavitation produced linear arrays of cavitated particles. The matrix ligaments between cavitated particles were strong enough that they did not fracture; higher strains were accommodated by particle cavitation and matrix extension in the regions separating the arrays. The cavitated arrays were also observed in the damage zone that accompanied the fracture surface of specimens impacted at -20 degrees C. Cooperative cavitation may have implications for the impact strength of blends with higher concentrations of rubber particles. The possibility that particle-particle interactions facilitate cavitation and promote matrix shear deformation is especially relevant to low-temperature impact strength.