Poly(styrene-co-glycidyl methacrylate) (PS-GMA) is used as an in situ compatibilizer for incompatible (or immiscible) blends of poly(butylene terephthalate) (PET) and polystyrene (PS). The epoxy group in PS-GMA reacts with the carboxylic acid group in PET, thus PS-graft-PBT copolymer is formed and acts as a compatibilizer between PS and PET during the melt blending. The degree of the reaction is investigated by the observation of the torque change with time at various temperatures, since the torque is directly related to the amount of graft copolymer formed in the mixer. But, the actual temperature in the mixer is higher than the specific setting temperature due to the viscous heating and exothermic reaction with time. Thus, the torque, as obtained from a torque rheometer, must be appropriately compensated based on the reference temperature, which becomes more useful in finding a relationship between the degree of the reaction and the amount of graft copolymer formed. Rheological behaviour of blends having in situ compatibilizer was investigated by dynamic oscillatory shearing measurement. It is shown that as the amount of graft copolymer formed during blending increases, the viscosity at low shear rates increases but the degree of shear thinning is not pronounced. For polymer alloys prepared at the setting temperature of 230 degrees C, the finer morphology was obtained when more than 5 phr PS-GMA was added to PBT/PS blend, but this amount of PS-GMA decreased to 3 phr when the setting temperature in the mixer was increased to 240 degrees C since at higher temperature more graft copolymer can be formed.