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Previous efforts to enhance thermoelectric performance have primarily focused on reduction in lattice thermal conductivity caused by broad-based phonon scattering across multiple length scales. Herein, we demonstrate a design strategy which provides for simultaneous improvement of electrical and thermal properties of p-type PbSe and leads to ZT ∼ 1.6 at 923 K, the highest ever reported for a tellurium-free chalcogenide. Our strategy goes beyond the recent ideas of reducing thermal conductivity by adding two key new theory-guided concepts in engineering, both electronic structure and band alignment across nanostructure–matrix interface. Utilizing density functional theory for calculations of valence band energy levels of nanoscale precipitates of CdS, CdSe, ZnS, and ZnSe, we infer favorable valence band alignments between PbSe and compositionally alloyed nanostructures of CdS_1–xSe_x/ZnS_1–xSe_x …