EU leaders abruptly cautioned May on Thursday that unless she gave ground on trade and the Irish border by November they are ready to cope with Britain crashing out.
"At the moment what the European Union is asking in and around Northern Ireland is simply impossible for any UK government to accept. And actually if they stick with that position, there will be no deal," Grayling said.
"There's tough language and actually a deal is done at the last. And I'm still confident that we will reach agreement," he added.
Britain is due to leave the European Union on March 29, yet little is clear: There is, so far, no divorce deal, rivals to May are circling and some rebels have vowed to vote against a possible Brexit deal.
(Reporting by Guy Faulconbridge, editing by James Davey)