In this article the demixing instability and phase segregation in unentangled polymer solutions of semiflexible chains at high‐rate uniaxial extension above the coil to stretched coil transition was studied. Orientation of the stretched chains was described in terms of an effective potential field. Based on the free energy analysis it was shown that the flow‐induced orientation of polymer segments could drastically reduce the energy of their steric repulsion. As a result attraction between the chains gain more importance, and this effect lead to the demixing process and eventual segregation of polymer from the solvent if the strain rate exceeds some critical value. A mean‐field theory was developed to study this flow‐induced phase separation effect. The phase diagrams of the system showing the spinodal and binodal transitions at different extension rates were calculated and discussed. © 2016 Wiley Periodicals, Inc. J. Polym. Sci., Part B: Polym. Phys. 2016, 54, 1066–1073