Melt mixed blends of poly(butylene terephthalate) (PBT) with a polyester type polyurethane (PU) were characterized by tensile testing, dynamic mechanical analysis (DMA), differential scanning calorimetry (DSC), optical and electronic microscopy (SEM) and solution H-1 NMR. Blends prepared covered the complete composition range. Large deformation behavior, thermal properties and DMA indicated partial component mixing and mechanical compatibility typical of a polymeric alloy. Morphology examination revealed good component dispersion and strong interface adhesion. H-1 NMR of blends showed the formation of a PBT-PU copolymer by ester-amide interchange reactions whose extent depended on the PBT-PU ratio and melt mixing conditions. Evidence for the formation of the copolymer was also provided by FT-IR. This in situ formed copolymer is responsible for the compatibilization achieved. (C) 2001 Elsevier Science Ltd. All rights reserved.