The effect of silver nanoparticles (nAg) in PS/PVME [polystyrene/poly(vinyl methyl ether)] blends was studied with respect to the evolution of morphology, demixing temperature, and segmental dynamics. In the early stage of demixing, PVME developed an interconnected network that coarsened in the late stage. The nAg induced miscibility in the blends as supported by shear rheological measurements. The physicochemical processes that drive phase separation in blends also led to migration of nAg to the PVME phase as supported by AFM. The segmental dynamics was greatly influenced by the presence of nAg due to the specific interaction of nAg with PVME. Slower dynamics and an increase in intermolecular cooperativity in the presence of nAg further supported the role of nAg in delaying the phase separation processes and augmenting the demixing temperature in the blends. Different theoretical models were assessed to gain insight into the dynamic heterogeneity in PS/PVME blends at different length scales.