The breakup of the rubber phase in an ethylene-propylene-diene monomer (EPDM)/polypropylene (PP) blend at the early stage of dynamic vulcanization is similar to that in an unvulcanized EPDM/PP blend because of the low crosslink density of the EPDM phase. In this work, the minimum size of the rubber phase in the unvulcanized EPDM/PP blend was first calculated by using the critical breakup law of viscoelastic droplets in a matrix. The calculated results showed that the minimum size of the rubber phase in the unvulcanized blend was in the nanometer scale (25-46 nm), not the micrometer scale as reported in many works. Meanwhile, the actual size of the rubber phase in the thermoplastic vulcanizate (TPV) at both the early stage and the final stage of dynamic vulcanization was observed by using peak force tapping atomic force microscopy (PF-AFM). The results indicated that the EPDM phase indeed broke up into nanoparticles at the early stage of dynamic vulcanization, in good agreement with the calculated results. More interestingly, we first revealed that the micrometer-sized rubber particles commonly observed in TPV were actually the agglomerates of rubber nanoparticles with diameters between 40 and 60 nm. The mechanism for the formation of rubber nanoparticles and their agglomerates during dynamic vulcanization was then discussed. Our work provides guidance to control the microstructure of the rubber phase in TPV to prepare high performance TPV products for a wide range of applications in the automobile and electronic industries.