A twin-screw extruder was used to graft oxazoline reactive group onto polycaprolactone (PCL) by free radical initiation reaction. A low-volatility oxazoline compound was used to facilitate a high-temperature grafting reaction. The effect of melt temperature, screw speed, and initiator and monomer concentrations on graft content were evaluated. The graft content ranged from 0.7 to 2.6%. Increased melt temperature and reduced screw speed increased the graft content. Molecular weight and molecular weight distribution evaluated with the help of intrinsic viscosity and gel permeation chromatography measurements gave values that were close to that of the unmodified PCL. The oxazoline-grafted polyester gave considerable increase in the tensile force when compared with that of pure PCL. The grafting reaction was confirmed using Fourier transform infrared spectroscopy and nuclear magnetic resonance techniques. A probable reaction mechanism for the grafting reaction is proposed.