The emergence of phase separation in both intracellular biomolecular condensates (membrane-less organelles) and in vitro aqueous two-phase systems (ATPS) relies on the formation of immiscible water-based phases/domains. The solvent properties and arrangement of hydrogen bonds within these domains have been shown to differ and can be modulated with the addition of various inorganic salts and osmolytes. The naturally occuring osmolyte, trimethylamine-N-oxide (TMAO), is well established as a biological condensate stabilizer whose presence results in enhanced phase separation of intracellular membrane-less compartments. Here, we show the unique effect of TMAO on the mechanism of phase separation in model PEG-600-Dextran-75 ATPS using dynamic and static light scattering in conjunction with ATR-FTIR and solvatochromic analysis. We observe that the presence of TMAO may enhance or destabilize phase separation depending on the concentration of phase forming components. Additionally, the behavior and density of mesoscopic polymer agglomerates, which arise prior to macroscopic phase separation, are altered by the presence and concentration of TMAO.