Blends containing equal weight fractions of polypropylene (PP) and polyamide (PA-6 and PA-6.6) and up to 25% of a compatibilizing thermoplastic elastomer, either polystyrene-block-poly(ethylene-stat-butylene)-block-polystyrene (SEBS) or SEBS modified by maleic anhydride (SEBS-MA), were prepared by melt mixing. In all these blends, PP formed the continuous matrix phase. Even at high concentrations, unmodified SEBS was found to be a poor compatibilizer, affecting mainly the properties of the matrix. The graft copolymer formed, by reaction between SEBS-MA and polyamide during melt mixing, strongly influenced the blend morphology, by forming an interphase, separating the PA phase domains from the matrix. The crystallization behaviour of PP indicated that full coverage required between 3% and 5% SEBS-MA at the intense mixing conditions used. Above this level, the total surface area of the polyamide domains seemed to increase in direct proportion to the concentration of SEBS-MA. The thickness of the interphase layer was estimated to be about 15 nm. At high concentrations of SEBS-MA, the PA domains agglomerated and formed extended structures held together by the interphase polymer. This was reflected by the stress-strain and rheological behaviour of the blends. In blends with PA domains of small volume, crystallization of PA was delayed. The rate of water absorption was very low in blends containing SEBS-MA, much lower than in corresponding blends containing SEBS.