Pb0.75Sn0.25Te is an important PbTe‐based thermoelectric material that has been extensively applied in thermoelectric power generation for intermediate‐temperature use. Alkali metal (Na, K) hydrothermal treatments were performed on micro‐sized Pb0.75Sn0.25Te particles. After treatment, numerous nanorods with diameters of ∼20 nm and lengths of up to 200 nm were found uniformly embedded onto the surface of bulk particles. These nanorods contained surfaces that were subsequently transformed into nanosized fractal granular grain boundaries upon hot pressing of the treated Pb0.75Sn0.25Te bulk particles. The presence of this nanoscaled grain boundary results in an improvement of the ratio of the electrical conductivity to the thermal conductivity, via significantly reducing the lattice thermal conductivity while without appreciably affecting the Seebeck coefficient or the electrical resistivity. As a result, a thermoelectric figure of merit Z ∼ 1.1 × 10–3 K–1 (∼0.8 × 10–3 K–1) is obtained in Na (K)‐processed samples at ∼425 K (475 K), which is notably improved from Z ∼ 0.7 × 10–3 K–1 at ∼490 K in a bulk reference sample. The present work provides a new and novel avenue by which the lattice thermal conductivity of a polycrystalline system can be ‘essentially decoupled’ from the electronic properties and thus independently ‘tuned’ via controlling the micro‐morphology of the inter‐grain boundary. (© 2009 WILEY‐VCH Verlag GmbH & Co. KGaA, Weinheim)