While the phase inversion phenomena in thermoplastic vulcanizates have been extensively investigated, the mechanism underlying the evolution from the sea island to island sea phase transition is far from being understood. In this work, such transition of the polyolefin elastomer (POE)/polypropylene (PP) blend was studied simultaneously by density functional theory and experiments. Before vulcanization, the independent POE and PP phases were mixed into a homogeneous blend. After vulcanization, the microstructure of POE was altered, leading to a metastable state of the blend. Thereafter, the blend decomposed into two new phases. Accordingly, the interfacial density changed with the sea island morphology transition. According to the nucleation thermodynamics, the predicted nanoparticle size of POE nuclei is in general agreement with our experimental measurement. Thus, this work provides a novel thermodynamic explanation regarding the phase inversion in thermoplastic vulcanizates.