A complete expression for the enthalpy of mixing of inhomogeneous polymer–polymer–solvent systems applicable for small as well as large concentration fluctuations has been developed. This is used to express the free energy of inhomogeneous polymer–polymer–solvent systems in an extended form of the Landau‐Ginzburg functional. The gradient energy parameters obtained here are consistent with the published results. The free energy functional has been applied to develop a generalized continuity equation for spinodal decomposition in polymer–polymer systems. A linearized version of this continuity equation has been used to study the effect of the gradient terms on the dominant wavelength during spinodal decomposition.