This paper describes a new graft copolymer, polypropylene-graft-polycaprolactone (PP-g-PCL), which is an effective compatibilizer for PP blends with many engineering plastics, such as polycarbonate (PC) and poly(vinyl chloride) (PVC). The chemistry in the preparation of this graft copolymer involves hydroxylated PP, containing primary or secondary alcohol groups, and the anionic ring opening polymerization of epsilon-caprolactone (epsilon-CL). Despite the heterogeneous reaction conditions, the molecular structures of PP-g-PCL copolymers can be controlled by OH content, epsilon-CL concentration, and reaction time. In the bulk, the individual PP and PCL segments in the graft copolymers are crystallized into two separate phases with high crystallinities. The microscopy studies reveal the effectiveness of PP-g-PCL in the polymer blends by reducing the phase sizes and improving the dispersion of the minor component in the PP matrix.