Blends of poly(ethylene-co-vinyl alcohol) (EVOH) with maleic anhydride-grafted-poly(ethylene-octene) (POEg-MAH) were prepared by blending extrusion in order to improve the toughness and flexibility of EVOH. The compatibility behavior of these blends with POE-g-MAH content range from 0 to 25 wt% was studied using mechanical, thermal, infrared, and morphology characterization techniques. The mechanical test results showed that POE-g-MAH can significantly improve the impact toughness of EVOH with a brittletough transition appeared at the POE-g-MAH content of 20 wt%. A huge increase of toughness of the blend was also observed when the POE-g-MAH content was increased to 15 wt%. The thermal analysis of the blends demonstrated that the thermal stability of EVOH is improved with the addition of POE-g-MAH, adding 20 wt% or more POE-g-MAH can effectively decrease the crystallinity of EVOH and greatly improve compatibility between the two components. The existence of esterification between anhydride groups in POE-g-MAH and hydroxyl groups in EVOH in melt processing was confirmed using Fourier transform infrared technique.