The phase separation mechanism in poly(butylene terephthalate) (PBT)/polycarbonate (PC) and PBT/PC-copolymer (cPC) blends was investigated by time-resolved light scattering. The early stage of phase separation followed the linearized theory of spinodal decomposition. The temperature dependence of the apparent diffusion coefficient showed lower critical solution temperature (LCST) type phase behaviour (LCST=198 degrees C for PBT/PC and 228 degrees C for PBT/cPC). Scaling rules were applied for the late stages to show serious deviations from theoretical expectations. Time variation of the scattering invariant showed that the deviations were caused by an ester exchange reaction. A plausible scenario is presented for the development of a bicontinuous two-phase structure in the melt-extruded blends.