In this article, the structure, properties, and mechanism of reactive compatibilization of epoxy (EP) to polyphenylene sulfide (PPS)/polyamide elastomer (PAe) were investigated in detail. A PPS/PAe/EP ternary system was successfully prepared via reactive extrusion. Its mechanical and rheological properties were greatly improved compared with those of conventional PPS/PAe binary system. The addition of EP to PPS/PAe blend induced a series of chemical reactions. The chain-extended reaction of PPS was verified by high pressure capillary rheometer. The grafting reaction of PPS with PAe was testified by FTIR. The curing reaction of EP was proposed to explain the decreasing of the mechanical properties in PPS/PAe/EP ternary blend when it contained a high content of EP. Additionally, a toughened model was also proposed in PPS/PAe/EP ternary system. The improvement of toughness was attributed to the activation of matrix molecules in the shear band region. (c) 2013 Wiley Periodicals, Inc. J. Appl. Polym. Sci. 130: 3411-3420, 2013