Shear-induced coalescence was studied in immiscible blends of polydimethylsiloxane (PDMS) and polyisoprene (PI) with a droplet-matrix morphology, using both rheology and scanning electron microscopy. Dynamic moduli of the blends compatibilized with different amounts of a PDMS-PI diblock were measured. The experimental results indicate that the blend response is characterized by two relaxation mechanisms. The general Palierne model with an interfacial shear modulus was used to analyze the data, since this model can describe the dynamic response of polymer blends in which interfacial tension gradients induce an extra relaxation mechanism besides droplet relaxation. Scanning electron microscopy was used to investigate the droplet size evolution in the blends during coalescence. For systems with a high amount of compatibilizer, it is shown that coalescence is completely suppressed under the conditions studied here. (C) 2004 The Society of Rheology.