The effect of addition of organically modified montmorillonite (OMMT) on the phase separation of polystyrene (PS)/poly(vinyl methyl ether) (PVME) blend was examined. Using two types of OMMT modified with two different kinds of surfactants, the effect of organic modification on nanocomposites was investigated by focusing on three major aspects: phase transition, morphological study, and melt rheological behavior both below and above the critical transition temperature. X-ray diffraction (XRD) patterns revealed the formation of intercalated nanocomposites and transmission electron micrographic (TEM) observations showed that the ordering of silicate layers in blend matrix is well matched with the XRD patterns. The addition of clay was found to affect both the mechanism of phase separation and the final morphology. Such effects resulted in uncommon rheological behavior of the blend both below and above the critical transition temperature. Surface phase separation of thin films for virgin blend and nanocomposites was also examined by atomic force microscopy (AFM). Morphology resulting after phase separation was found to be dependent on the nature and the amount of OMMT added to the polymer blend.