A microscopic integral equation theory of elasticity in polymer liquids and networks is developed which addresses the nonclassical problem of the consequences of interchain repulsive interactions and packing correlations on mechanical response. The theory predicts strain induced softening, and a nonclassical intermolecular contribution to the linear modulus. The latter is of the same magnitude as the classical single chain entropy contribution at low polymer concentrations, but becomes much more important in the melt state, and dominant as the isotropic–nematic liquid crystal phase transition is approached. Comparison of the calculated stress–strain curve and induced nematic order parameter with computer simulations show good agreement. A nearly quadratic dependence of the linear elastic modulus on segmental concentration is found, as well as a novel fractional power law dependence on degree of polymerization. Quantitative comparison of the theory with experiments on polydimethylsiloxane networks are presented and good agreement is found. However, a nonzero modulus in the long chain limit is not predicted since quenched chemical crosslinks and trapped entanglements are not explicitly taken into account. The theory is generalizable to treat the structure, thermodynamics and mechanical response of nematic elastomers.