Novel smart thermoplastic elastomers (TPEs) with very high extensibility were prepared by blending polyvinylidene fluoride (PVDF) with hydrogenated nitrile rubber (HNBR) at an appropriate ratio, and their processing–structure–property relationship was investigated. Although the rubber phase was found to be dispersed in the matrix of PVDF for all compositions, morphology was shear sensitive and changed significantly after each processing step. Dropletlike structure was observed after the mixing in an internal mixer and compression molding, which changed to the lamellar structure after milling and injection molding. The compression molded sample exhibited very high extensibility (∼1600% elongation at break for 30/70 PVDF/HNBR blend) and a tensile strength of ∼6 MPa due to the formation of a strong interface. The elongation at break was much higher than any of the TPEs reported so far. Theoretical calculation of rubber particle size was also in agreement with the experimental observation. Dissipative particle dynamics simulation was run to capture the morphology, where HNBR chains were more sensitive to the shear force than the PVDF chains. The electromechanical sensitivity of the blend was 14.3 MPa−1, much better than the existing reported elastomeric actuator as well as pristine PVDF. Dynamic vulcanization gave further improvement in tensile strength and tension set properties.