Relatively high contents of rubber are commonly required to trigger the brittle-to-ductile transition when using rubber components to toughen polylactide (PLA). However, the strength may drop remarkably after incorporation of large amount of rubber. The main motivation of the present work is to achieve a good toughness-strength balance in a PLA/rubber system with less amount of rubber phase (90/10 w/w). In this study, polybutadiene (PB) was used to toughen PLA due to the flexible molecular chains. In attempt to enhance the compatibility of PB in PLA matrix, epoxidized polybutadiene (EPB) with different epoxidation degree were prepared by an in situ peroxy-formic acid method. The compatibility, phase morphologies, mechanical properties and thermal properties of the PLA/EPB blends were investigated respectively. It was found that epoxy group of EPB showed a significant effect in enhancing compatibility between rubber phase and PLA matrix, giving rise to a remarkable decrease in the particle diameter of rubber phase. When both of the good compatibility and the appropriate particle size of the rubber phase were realized, the impact toughness of PLA/EPB blend was improved by 13 times for that of pure PLA, while the tensile strength still preserved as a level of 77% (based on the value of pure PLA). The interfacial compatibilization between PLA and EPB was achieved through the formation of graft-copolymer being a compatibilizer caused by the in-situ reaction between EPB and PLA in the melt blend process. This result proves the introduction of active groups into PLA blends to be a platform to design their performance via regulating the phase structure. (C) 2016 Elsevier Ltd. All rights reserved.