Structure-property relationships were investigated for blends of grafted rubbery polymers with PVC. Increasing grafting levels as well as higher blending temperatures improved the dispersion of the graft copolymers in PVC, lowered the impact strength, and reduced stress whitening. Presuming a mechanistic connection between impact strength and stress whitening, the causes of whitening due to mechanical deformations were studied by a variety of methods. Electron microscopy of stress-whitened zones revealed a large number of cavities formed by rupture of rubber particles, which correlated with the extent of whitening. Density measurements and quantitative evaluations of the volume increase due to the cavities in the stress-whitened zones were in agreement and proved that crazing did not significantly contribute to either volume dilation or stress-whitening. Light scattering studies indicated the existence of reflecting planes oriented at an angle of 55 to 64° to the direction of the applied stress, depending on the particle size of the modifier in the blends. The orientation of the scattered light could not be attributed to the cavities in the rubber particles because of their smallness (< 0.5 μm). An explanation was finally found by transmission light microscopy at various resolving powers. It was demonstrated that the ruptured rubber particles were accumulated in bands which corresponded to shear bands in the PVC matrix. Thus it was concluded that the rubber particles improved the impact strength of PVC by initiating shear bands and not by generating crazes.