This study describes an attempt to improve the impact resistance of polyacetal (POM)/ethylene propylene diene terpolymer (EPDM) blends by means of compatibilization and dynamic vulcanization. A commerical copolymer, poly(acrylic acid)‐grafted polypropylene (PGP), has been used as a compatibilizer to control the phase morphology of the blend system. Dicumyl peroxide is used to dynamically vulcanize the EPDM elastomer in the blend. At temperatures higher than 185°C, the compatibilizer decreases the viscosity of compatibilized and dynamically vulcanized (cdv) POM/EPDM blends. Impact strength of the cdv blend system increases considerably with a marginal decrease in tensile yield stress and heat deflection temperature as the PGP content increases. The significant increase in impact strength seems to be due to the role of PGP as a linking agent for the binary blends rather than as a third component. Though dynamic mechanical studies do not indicate any compatibility in cdv‐POM/EPDM blends, scanning electron microscopy reveals the strong interpenetrating interphase in the compatibilized blend system. Dynamic vulcanization raises elastic recovery and tensile modulus of the blends. Hysteresis energies of the blends increase consistently with the addition of PGP. The crystalline structure of POM is not affected by compatibilization and vulcanization. © 1994 John Wiley & Sons, Inc. Copyright © 1994 John Wiley & Sons, Inc.