Polymer blend nanocomposites containing poly(butylene terephthalate) (PBT), polyethylene (PE), and organoclay were prepared by direct melt compounding. Their immiscible morphologies were investigated using electron microscopy, X-ray diffraction, and parallel plate rheometry. The PE domain sizes were reduced when the polar PBT phase was continuous (PBT/PE = 60/40) because the clay tactoids effectively prevented the coalescence of the dispersed PE domains. However, when the PBT component presented domains dispersed in the rich PE matrix (PBT/PE = 40/60), the addition of clay (> 2 wt %) changed the phase morphology into a novel cocontinuous one, which was further confirmed by rheological measurements. The existence of clay tactoids led to a sharp enhancement in the viscosity of the PBT phase, changing the viscosity ratio between the PBT and PE phases remarkably, which may have promoted the phase inversion. As a result, clay had significant effects on the morphology of the polymer blend. (c) 2006 Wiley Periodicals, Inc.