Polymer blends of poly(ethylene terephthalate) (PET) and polystyrene (PS) are immiscible and incompatible, which has been well recognized. Styrene–glycidyl methacrylate (SG) copolymer has been synthesized by suspension polymerization and employed in this study as an in situ compatibilizer for the polyblends of PET and PS. This copolymer contains reactive epoxy functional groups that are able to react with PET end groups [BOND]OH and [BOND]COOH) under melt conditions to from SG-graft-PET copolymer. The presence of a small amount of phosphonium catalyst (200 ppm) accelerated the graft reaction and results in a better compatibilized blend. The compatibilized PET/PS blend has a smaller phase domain and higher viscosity than does the corresponding noncompatibilized blend. Mechanical properties of the compatibilized blends have also been improved significantly over the corresponding noncompatibilized blends. © 1993 John Wiley & Sons, Inc.