Blends of polylactic acid (PLA)/poly(butylene adipate-co-terephthalate) (PBAT) (80/20) blend and their composites with multiwalled carbon nanotube (MWNT) were prepared using a batch mixer. In the melt-mixing process, benzoyl peroxide (BPO), azobisisobutyronitrile (AIBN), and dicumyl peroxide (DCP) were introduced as radical initiators to achieve reactive compatibilization by coupling reactions of the components. The phase structure and rheological properties of the blends and composites were investigated. It was found that the size of the PBAT dispersed phase was reduced, and the melt viscosity increased in the PLA/PBAT/initiator blend by the intended reactions of the initiators. The dispersion state of PBAT and the distribution of MWNTs between PLA and PBAT were sensitively changed by the interactions between the component polymers and MWNTs, which depended on the characteristics of the initiators and mixing protocols. Changes in the microstructure of the composites were explained in relation to the modified Cole-Cole plots.