Polystyrene (PS) and polyethylene (PE), along with their reactive counterparts, i.e., polystyrene having oxazoline reactive groups (OPS) and polyethylene with carboxylic acid groups (CPE), were melt blended in a Rheomix mixer. These blends were prepared by mixing these polymers in various proportions under a variety of conditions. In an alternate procedure the OPS, CPE graft polymer (OPS-g-CPE) was prepared by melt blending these two polymers beforehand, and subsequently this grafted polymer was used as a compatibilizer for PS–PE blends. The effects of the addition of OPS and CPE, on the one hand, and OPS-g-CPE, on the other hand, on the compatibility of PS–PE blends were investigated. The morphology of these blends was examined with a scanning electron microscope (SEM) and related to their tensile properties. The PS–PE blends are found to have the typical coarse morphology of incompatible blends and poor tensile properties while their reactive counterparts, OPS-CPE blends, have fine grain microstructure and show improved tensile strength throughout the range and improved elongation in the PE-rich blends. Relatively low concentrations of the reactive pair, oxazoline and carboxylic acid, are shown to be necessary to produce improved compatibility. The preblended graft copolymer OPS-g-CPE imparts compatibility to PS–PE blends also but not as effectively. This suggests that the addition of OPS and CPE during melt mixing of PS and PE forms OPS-g-CPE polymer at the interface and that these ingredients act as “in situ reactive compatibilizers” which improve physical properties.