The deformation mechanisms of rubber toughened polyethylene terephthalate (PET) are studied with fractography of impact fractured samples and tensile dilatometry. The dispersed phase consists of a mixture of an ethylene-co-propylene rubber (EPR) and a compatibilising agent (E-GMA8: copolymer of ethylene and 8 wt% of glycidyl methacrylate). It is found that the ductile fracture behaviour, above the brittle-ductile transition temperature (T-bd), consists of a high degree of rubber cavitation and extensive matrix shear yielding, both in the fracture plane and the stress whitened zone surrounding the crack. A steep increase in the volume strain upon tensile loading confirms the presence of the rubber voiding mechanism in the PET/(EPR/E-GMA8) blend system. It is seen that the stress whitened zone below the impact fracture surface consists of different zones, depending on the test temperature. Below Tbd, a layer of a highly deformed structure is followed by a cavitation layer containing only a limited number of cavitaties. Increasing the temperature, causes the deformation layer to be replaced by a zone lacking structure. It is believed that part of the fracture energy has been dissipated in the form of heat inducing a relaxation in the structure. Dynamical mechanical analysis under superimposed axial stresses reveals that the dispersed rubber particles internally cavitate in the presence of volume strain. At increased volume strains, the biaxial stress state in the cavitated particle is disturbed, resulting in the rupture of the rubber chains closest to the void by a tearing mechanism; revealing that the rubber particle is damaged upon cavitation. (C) 2003 Elsevier Science Ltd. All rights reserved.