Bisphenol-A type solid epoxy resin has been demonstrated as a low cost and efficient compatibilizer for the immiscible and incompatible blends of polyamide 6,6 (PA66) and poly(butylene terephthalate) (PBT). The phase domains of the compatibilized blends have been reduced, while their mechanical properties substantially improved. A fraction of this difunctional epoxy resin is able to form in situ the PBT-co-Epoxy-co-PA66 mixed copolymer at the interface. This mixed copolymer with both segments structurally identical to both base polymers will anchor along the interface, and functions as an effective compatibilizer for the PA66/PBT blends. The mechanism of the mixed copolymer formation has been discussed in detail. The mechanical property improvement of the PA66-rich blends is more significant than of the PBT-rich blends after compatibilization. The nature of the reactive compatibilization tends to leave a greater fraction of the compatibilizer in the PBT phase than in the PA66 phase. Therefore, the intrinsic properties of the PBT matrix have been reduced after compatibilization. This is why the improvement in properties of the PBT-rich blends are not as great as expected. Different types of core-shell elastomers have also been employed to toughen the PA66/PBT blends.