Thermoplastic elastomers (TPEs) based on polypropylene (PP)/waste ethylene–propylene–diene terpolymer powder (WEPDMP) composites were prepared by melt compounding, and the composites were compatibilized by styrene–butadiene–styrene block copolymer (SBS). The effects of SBS compatibilizer on mechanical, morphological properties, and the Mullins effect of the TPEs were investigated systematically. Experimental results indicate that SBS had a good compatibilization effect on the PP/WEPDMP composites. Compared with PP/WEPDMP composites, the tensile strength and the elongation at break went through a maximum value at an SBS content of 6 phr, which were improved by 49.4 and 170.3%, respectively. Morphology study shows that the interface interaction of the PP/WEPDMP composites compatibilized by SBS was strong, which contributed to the significantly improved mechanical properties. Mullins effect results show that the softening obviously appeared after the second loading–unloading cycle, while the maximum stress decreased slightly at the later cycles and the internal friction loss of PP/SBS/WEPDMP composites was lower than that of PP/WEPDMP composites, indicating the elasticity of PP/WEPDMP TPE is improved by the incorporation of SBS.