The influence of the functional groups concentrations on the reactive compatibilization of polybutylene terephthalate (PBT)/epoxide-containing rubber blends has been investigated by using various PBT and ethene-(methyl acrylate)-(glycidyl methacrylate) terpolymer (E-MA-GMA) grades. The reactivity of the rubber phase was modified using different strategies, including the use of commercial terpolymer grades, modification of E-MA-GMA or diluting E-MA-GMA terpolymers with non-reactive ethene-(methyl acrylate) (E-MA) copolymer. The reactive blends were analyzed amongst others by electron microscopy and fractionation experiments. It was shown that the final particle size is directly related to the amount of copolymer formed in situ at the blend interface, i.e. chain area density Sigma. A value of approximately 0.05 chains/nm(2) for Sigma is necessary to suppress dynamic coalescence and to obtain very fine dispersion (<0.2 mum). This requires a sufficiently high concentration in reactive functions at the interface vicinity. In this context, the time required for equilibrium morphology is rather independent of the GMA content in the terpolymer but is, however, intimately related to the PBT chain ends concentration. Investigation of PBT/(E-MA-GMA/E-MA) ternary blends revealed unambiguously that the formation of the copolymer at the interface is not controlled by the diffusion of the reactive chains towards the interface. The performed experiments offer new opportunities for modulating the final morphology and the properties of the PBT/rubber blends. (C) 2003 Published by Elsevier Ltd.