Compounds of ground tyre rubber (GTR) and polypropylene (PP) were prepared in an internal mixer and characterised by means of mechanical, thermal and morphological testing. Only physical melt mixing could not provide a suitable interface compatibilisation and leads to compounds with poor mechanical properties. However, the application of a reactive melt mixing process, using organic peroxides as radical donators, was found to be suitable to initiate a compatibilisation reaction via interphase grafting. These compatibilised GTR/PP elastomeric alloy (EA) systems exhibit interesting mechanical properties which are close to that of conventional two phase thermoplastic elastomers (TPE) based on dynamically vulcanised ethylene propylene diene monomer (EPDM)/PP blends. Results of the morphology investigations substantiate the occurrence of a compatibilisation reaction between rubber particles and PP matrix during reactive mixing which is most probably responsible for the enhanced material properties of the GTR/PP EA.