This study is an attempt to explore the effectiveness of thermoplastic copolyester elastomer (TPCE) as a toughening agent for improving the impact strength of PLA. Biobased Hytrel((R)) thermoplastic copolyester of polyether glycol and polybutylene terephthalate was selected as the TPCE of choice for this study. Blends of PLA/Hytrel at varying weight ratios were prepared using extrusion followed by injection molding technique. Optimal synergies of two polymers were found in the PLA/Hytrel (70/30) blend, showing impact strength of 234 J/m, a sixfold increase compared to neat PLA. In order to obtain further enhancement in toughness, different functionalized terpolymers were added to accomplish reactive compatibilization. A series of functionalized terpolymers, ethylene methyle acrylate-glycidyl methacrylate (EMA-GMA), ethylene butyl acrylate-glycidyl methacrylate (EBA-GMA), ethylene methyl acrylate-maleic anhydride (EMA-MaH), and ethylene butyl acrylate-maleic anhydride (EBA-MaH) were selected. Comparing PLA ternary blends with different terpolymers, GMA containing terpolymers showed better impact toughness compared to MaH terpolymer blends. Unique fracture surface morphology showing debonding cavitation and massive shear yielding in the ternary blends containing EMA-GMA resulted in super toughened blends. Highest zero shear viscosity and storage modulus was also observed for ternary blends with EMA-GMA. Under the processing conditions and blend ratio investigated, EMA-GMA showed better efficiency in improving the toughness of the PLA blends. POLYM. ENG. SCI., 58:280-290, 2018. (c) 2017 Society of Plastics Engineers