With excellent comprehensive properties, polylactic acid/poly(butylene adipate-co-butylene terephthalate) (PLA/PBAT) blends have found wide applications as degradable materials. During the processing procedure, a third component compatibilizer is introduced to improve the compatibility and mechanical properties of PLA/PBAT blends. In this work, environmentally friendly epoxidized soybean oil (ESO) is used for the compatibilization of PLA/PBAT blends through the chemical reaction of ESO with terminated hydroxyl groups of the two phases. Through the adjustment of the amounts of ESO, the compatibilization effect on the properties of PLA/PBAT blends is studied. The compatibilization mechanism of ESO was analyzed by Fourier transform infrared spectroscopy and differential scanning calorimetry testing, and the results prove that ESO could react with PLA and PBAT to form a chemical bonding interface. The PLA/PBAT blends compatibilized with ESO demonstrated a significant increase in tensile strength, elongation at break, and notched impact strength.