Poly(N-isopropylacrylamide) (PNIPAM) microgel particles dispersed in water have been used as a matrix for the polymerization of a hydrophobic monomer, N-methylpyrrole (MPy). The presence of poly(MPy) (PMPy) within the dried composite particles has been confirmed using electron paramagnetic resonance (EPR) measurements which show a characteristic free-radical signal at g=2.007. Electron microscopy data (TEM) show that the composite PNIPAM-xPMPy particles have a “raspberry-like” morphology. (The value for x represents the volume percent of MPy added during synthesis with respect to the total microgel volume.) PCS data indicate that PMPy occupies the majority of the collapsed composite particle volume. The maximum value of x consistent with colloid stability for PNIPAM-xPMPy dispersions is 4.5%. Higher values of x result in coagulation due to interparticle bridging by PMPy. Variable temperature PCS measurements of the PNIPAM-xPMPy dispersions have been used to study the thermally induced collapse of the composite particles. The extent of collapse becomes less with increasing values for x. The embedded PMPy particles restrict the extent of PNIPAM network contraction. The stability of the PNIPAM-4.5PMPy dispersions was investigated by means of turbidity measurements using aqueous 0.1 M NaCl solution. The upper critical flocculation temperatures (UCFT) for PNIPAM and PNIPAM-4.5PMPy dispersions were identical (38–39°C). The flocculation observed was found to be fully reversible. The composite dispersion stability in the absence of salt was attributed to electrosteric stabilization afforded by the PNIPAM matrix. These results indicate that PNIPAM microgel particles may have application as a matrix for the polymerization of hydrophobic monomers in water.