Thermoplastic olefin (TPO)/clay nanocomposites were made with clay loadings of 0.6-6.7 wt %. The morphology of these TPO/clay nanocomposites was investigated with atomic force microscopy, transmission electron microscopy (TEM), and X-ray diffraction. The ethylene-propylene rubber (EPR) particle morphology in the TPO underwent progressive particle breakup and decreased in particle size as the clay loading increased from 0.6 to 5.6 wt %. TEM micrographs showed that the clay platelets preferentially segregated to the rubber-particle interface. The breakup of the EPR particles was suspected to be due to the increasing melt viscosity observed as the clay loading increased or to the accompanying chemical modifiers of the clay, acting as interfacial agents and reducing the interfacial tension with a concomitant reduction in the particle size. The flexural modulus of the injection moldings increased monotonically as the clay loading increased. The unnotched (Izod) impact strength was substantially increased or maintained, whereas the notched (Izod) impact strength decreased modestly as the clay loading increased. (C) 2004 Wiley Periodicals, Inc.