Reactive modification of polyolefin elastomer/polypropylene (PP) blends using an organic peroxide initiator is investigated. In the presence of a polyolefin elastomer matrix the crosslinking reaction dominates over the degradation of PP. Partition of the peroxide in the two phases and crosslink density depend highly on the method of incorporation of peroxide during compounding. Crosslinking of the elastomeric phase results in substantially higher viscoelastic properties compared to the unreactive blend and an elastic-like response, as well as enhanced stiffness compared to the uncrosslinked compound. Reactive modification provides a means for generating very fine phase morphology, due to efficient stress transfer to the dispersed phase by the viscous matrix.