A new method has been developed to compatibilize the blends of polystyrene (PS) and polyethylene (PE). Polyethylene is first crosslinked partially by using a small amount of dicumyl peroxide (DCP) in a mixer at 165 degrees C. Then the crosslinked PE is melt-blended with PS for another 5 min. Finally, a styrene-butadiene-styrene block copolymer (SBS) is added to the melt and mixed for another 5 min. We refer to this special procedure as the two-step crosslinking process. During the final mixing step of this process, the residual free radicals in the PE react with SBS. The crosslinking that occurs between PE and SBS has a significant impact on the mechanical properties of the blends including the impact strength, the tensile modulus, and the elongation-at-break. Scanning electron microscopy (SEM) results indicate that the interfacial adhesion is increased significantly, even though the domain sizes have not changed significantly in comparison with the non-crosslinked system. Transmission electron microscopy (TEM) results indicate that a thin SBS interfacial layer fully encapsulates the PE particles. This method could also be applied to other blend systems containing at least one component and a compatibilizer that are crosslinkable.