Glycidyl methacrylate (GMA) functionalized acrylonitrile-butadiene-styrene (ABS) copolymers have been prepared via an emulsion polymerization process. These functionalized ABS copolymers (ABS-g-GMA) were blended with poly(butylene terephthalate) (PBT). DMA result showed PBT was partially miscible with ABS and ABS-g-GMA, and DSC test further identified the introduction of GMA improved miscibility between PBT and ABS. Scanning electron microscopy (SEM) displayed a very good dispersion of ABS-g-GMA particles in the PBT matrix compared with the PBT/ABS blend when the content of GMA in PBT/ABS-g-GMA blends was relatively low (< 8 wt% in ABSg-GMA). The improvement of the disperse phase morphology was due to interfacial reactions between PBT chains end and epoxy groups of GMA, resulting in the formation of PBT-co-ABS copolymer. However, a coarse, non-spherical phase morphology was obtained when the disperse phase contained a high GMA content ( 8 wt%) because of cross-linking reaction between the functional Groups of PBT and GMA. Rheological measurements further identified the reactions between PBT and GMA. Mechanical tests showed the presence of only a small amount of GMA (1 wt%) within the disperse phase was sufficient to induce a pronounced improvement of the impact and tensile properties of PBT blends. SEM results showed shear yielding of PBT matrix and cavitation of rubber particles were the major toughening mechanisms. (c) 2005 Published by Elsevier Ltd.