Hybrid composite samples composed of polypropylene as matrix, 20% short glass fibers (SGF) as reinforcement and varying amount of maleic anhydride (MA) grafted SEBS as compatibilizer and impact modifier were prepared by melt mixing in a modular twin screw extruder. The SEM examination performed on cryogenically fractured surfaces of hybrid samples showed a three-phase type morphology in which SGF and rubber phase finely distributed in the PP matrix. SEM results also revealed that in the hybrid samples containing SEBS-MA, the surface of the SGF are coated with a thin layer of SEBS-MA, indicating a strong adhesion between SGF and matrix materials. The results of rheological studies showed nearly equal viscosity for compatible and incompatible hybrid samples. Tensile yield strength enhanced with increasing rubber content up to 10% above which it decreased and highest impact strength enhancement was obtained for sample containing 20% rubber. The impact strength of composites was found to be increased with increasing the SGF content. In final, it was shown that a good balance between stiffness and toughness could be achieved by adjusting the SGF and rubber content in this ternary system. (c) 2007 Wiley Periodicals, Inc.