Caprolactam and a reactive, low molecular weight polybutadiene were polymerized in an autoclave, followed by post-condensation in the solid state. The rubber concentration was varied (0–30 wt%). The morphology of the reaction products was studied by transmission electron microscopy. In the materials with 10 and 20 wt% polybutadiene, large spherical polybutadiene-rich domains with nylon sub-inclusions were observed. The 30 wt% polybutadiene product was shown to have a co-continuous structure. The moduli of the materials decrease rapidly with rubber content and only the material with the highest polybutadiene content had a high notched Izod impact strength.