This paper constitutes the third part in a series of studies(1,2) on the ionomeric blend system of poly(ethyl acrylate-co-4-vinylpyridine) and zinc-neutralized sulfonated poly(ethylene terephthalate). The focus of this work is to examine the compatibility behavior of the system in relation to the functionalization level of the polymer constituents. Particular effort is made to address the competition between the specific interactions that could lead to compatibilization and the crystallization of the semicrystalline component that could lead to phase separation. Results show that compatibilization but not miscibilization was observed with functionalization levels as high as 10 mol%. FTIR studies indicate that the extent of the specific intermolecular interactions between the functionalized polymers increases with the functionalization level. In accordance, the degree of mixing as probed by both differential scanning calorimetry (DSC) and dynamic mechanical thermal analysis (DMTA) also increases as the extent of the specific interactions increases. Crystallization of the PET-SO3Zn component was shown to induce some phase separation; however, the system remained compatibilized by virtue of the presence of the specific interactions. As a result of the enhanced mixing with an increase in the sulfonation level, the crystallization behavior of the PET-SO3Zn phase experienced increased perturbation. The mechanical properties of the functionalized blends mere shown to exhibit dramatic improvement over that of the unmodified blend, probably as a consequence of interfacial adhesion among the different phases within the blend matrix.