The morphology of PET/PC/E-GMA-MA blends made by different mixing sequences was studied by transmission electron microscopy (TEM). The results suggest that migration of the E-GMA-MA copolymer from the PET phase to the PC phase occurred during the mixing of the (PET/E-GMA-MA) pre-blend with the PC at 10% copolymer content. As a result of the migration, the E-GMA-MA particles are located in the PC phase rather than in the PET phase. This finding is not in agreement with the prediction made previously by others based on the possible reaction between the epoxy group of GMA and carboxyl group of PET. Core-shell (PC/E-GMA-MA) particles formed in situ during blending and the size of the core-shell particles was controlled by the blending sequence used. Mechanical properties of the ternary blends were tested at various temperatures. Although the blending sequence does not have a noticeable effect on the yield strength and modulus of the blends, it has a strong influence on the morphology formed, which determines the impact toughness. For blends made under optimum processing conditions, the brittle-ductile transition occurred at a lower temperature and lower elastomer content. A study of the toughening mechanism suggested that the major toughening events were cavitation plus matrix shear yielding. It is postulated that the very high impact toughness found with the (PC/E-GMA-MA)/PET blend (at 10% E-GMA-MA) originated from the bimodal particle size distribution of the core-shell particles formed in situ.