An interpenetrating network (IPN) hydrogel with a highly enhanced elongation-at-break has been prepared using poly(ethylene glycol) (PEG)-swollen poly(2-acrylamide-2-methylpropane sulfonic acid) (PAMPS) as the first network and polyacrylamide (PAM) as the second network. The new IPN hydrogel of PAMPS–PEG/PAM has remarkably high elongation-at-break (∼2100%) in tensile deformation, which is 4 times larger than common PAMPS/PAM IPN hydrogel and PAMPS/PAM–PEG IPN hydrogels synthesized by incorporating PEG into the second network. The microstructures of single network (SN) and IPN hydrogels were investigated by synchrotron radiation small-angle X-ray scattering (SAXS). SAXS results were analyzed by Guinier, Ornstein–Zernike (OZ), and generalized Ornstein–Zernike (GOZ) models. It was found that the incorporated PEG increases the size of cross-linked domains and decreases the fractal dimension of domains. The toughening mechanism of PEG on IPN hydrogel was discussed. It is proposed that the largely enhanced toughness of PAMPS–PEG/PAM IPN hydrogel is due to the increased size of physical cross-linked domains, hydrogen bonding between the first and second network, and the increased pull-out resistance of PAM chains under deformation.