The biodegradable polymer blend containing 70/30 weight ratio of poly(epsilon-caprolactone) (PCL) and polylactide (PLA) was prepared by means of melt mixing. The evolution of the 'sea-island' phase structure in the steady shear flow was studied using scanning electron microscope (SEM) and parallel-plate rheometer. The results show that the morphological evolution induced by steady shear follows different mechanisms at various flow rates. The lower shear rates (Newtonian flow) promote coalescence of the discrete PLA droplets, whereas higher shear rates (non-Newtonian flow) promote break-up of the droplets. The dynamic rheological responses of PCL/PLA blend before and after steady preshear were then analyzed using emulsion model and Taylor equation. The results show that the evolution approaches of the morphology highly depend on changed level of the critical effective interfacial tension in the steady shear flow, which are further confirmed by the transient rheological measurements. POLYM. ENG. SCL, 49:2293-2300, 2009. (C) 2009 Society of Plastics Engineers