A polymer/ionomer blend of nylon 4 (N4) with lithium-neutralized sulfonated polystyrene (SPS-Li) was investigated. Thermal analysis techniques (DSC and DMTA) were employed to examine the extent of compatibility of this multiphase polymer blend system. Particular efforts have been focused on the influence of the level of crystallinity of the N4 component and the water contents in the blends in relation to the phase behavior of the system. DSC and DMTA results show that blend compatibilization was achieved over the entire composition range by virtue of the presence of the specific intermolecular interactions between the amide groups and the lithium sulfonate groups. DSC and WAXD experiments revealed that "dry" samples with a higher level of crystallinity exhibit consistently higher T-g’s than those with lower crystallinity. Samples with different water contents were examined by DMTA. In comparison with the "wet" blends, it is found that the T-g’s are significantly higher for the "dry" blends. It is postulated that the increase in T-g upon drying/annealing is due to the combined effects of (a) suppression of the plasticization effect upon removal of water from the samples and/or (b) the increase in the crystallinity of the N4 component depending whether the compatible blends are in the semicrystalline/amorphous or amorphous/amorphous state.