The performance of bulk-heterojunction solar cells based on a phase-separated mixture of donor and acceptor materials is known to be critically dependent on the morphology of the active layer. Here we use a combination of techniques to resolve the morphology of spin cast films of poly(p-phenylene vinylene)/methanofullerene blends in three dimensions on a nanometer scale and relate the results to the performance of the corresponding solar cells. Atomic force microscopy (AFM), transmission electron microscopy (TEM), and depth profiling using dynamic time-of-flight secondary ion mass spectrometry (TOF-SIMS) clearly show that for the two materials used in this study, 1-(3-methoxycarbonyl)propyl-1-phenyl-[6,6]-methanofullerene (PCBM) and poly[2-methoxy-5-(3,7-dimethyloctyloxy)-1,4-phenylene vinylene] (MDMO-PPV), phase separation is not observed up to 50 wt.-% PCBM. Nanoscale phase separation throughout the film sets in for concentrations of more than 67 wt.-% PCBM, to give domains of rather pure PCBM in a homogenous matrix of 50:50 wt.-% MDMO-PPV/PCBM. Electrical characterization, under illumination and in the dark, of the corresponding photovoltaic devices revealed a strong increase of power conversion efficiency when the phase-separated network develops, with a sharp increase of the photocurrent and fill factor between 50 and 67 wt.-% PCBM. As the phase separation sets in, enhanced electron transport and a reduction of bimolecular charge recombination provide the conditions for improved performance. The results are interpreted in terms of a model that proposes a hierarchical build up of two cooperative interpenetrating networks at different length scales.