Styrene-butadiene rubber (SBR) is chemically modified with maleic anhydride (MAH) in a continuous process (reactive extrusion) at three different extrusion speeds with and without reaction initiator (benzoyl peroxide). the resulting modified rubber is used to produce compatibilized blends with polyethylene terephthalate (PET). The amount of grafted MAH groups on the rubber is determined by chemical titration and the degree of grafting is measured by infrared analysis. The degree of compatibilization between SBR and PET is determined indirectly through measurements of mechanical properties and average molecular weight of the blends. The anhydride and peroxide concentration influences the grafting reaction strongly and hence the mechanical properties and impact resistance of the blends. Compatibilization of the elastomeric and plastic phases at specific processing conditions gives rise to large improvements in the impact resistance of the blend over that of PET alone. (C) 2000 John Wiley & Sons, Inc.