Elastomer ethylene–butylacrylate–glycidyl methacrylate (PTW) containing epoxy groups were chosen as toughening modifier for poly(butylene terephthalate) (PBT)/polyolefin elastomer (POE) blend. The morphology, thermal, and mechanical properties of the PBT/POE/PTW blend were studied. The infrared spectra of the blends proved that small parts of epoxy groups of PTW reacted with carboxylic acid or hydroxyl groups in PBT during melt blending, resulting in a grafted structure which tended to increase the viscosity and interfere with the crystallization process of the blend. The morphology observed by scanning electron microscopy revealed the dispersed POE particles were well distributed and the interaction between POE and PBT increased in the PBT/POE/PTW blends. Mechanical properties showed the addition of PTW could lead to a remarkable increase about 10-times in impact strength with a small reduction in tensile strength of PBT/POE blends. Differential scanning calorimetry results showed with increasing PTW, the crystallization temperature (Tc) and crystallinity (Xc) decreased while the melting point (Tm) slightly increased. Dynamic mechanical thermal analysis spectra indicated that the presence of PTW could improve the compatibility of PBT/POE blends. © 2014 Wiley Periodicals, Inc. J. Appl. Polym. Sci. 2014, 131, 40660.