Thermoplastic vulcanizates (TPVs), as prepared by dynamic vulcanization, are blends in which cross-linked rubber particles are finely dispersed in a thermoplastic matrix. The reported nylon-6/EPDM TPVs show significant strain recovery behavior, even though the matrix consists of semicrystalline nylon-6, which deforms plastically via shear yielding. Atomic force microscopy and transmission electron microscopy experiments revealed an inhomogeneous plastic deformation of the matrix phase. During straining, the plastic deformation is initiated in those zones where the nylon matrix between the rubber particles is the thinnest. Even at high strains, the thick ligaments of the nylon matrix remain almost undeformed and act as adhesion points holding the rubber particles together. When the external force is removed, the elastic force of the stretched, dispersed rubber phase pulls back the plastically deformed nylon parts by either buckling or bending. This is considered to be the key mechanism for the elastic behavior of the investigated TPVs.