The ’in situ’ compatibilization of poly(ethylene terephthalate) (PET) copolymer (PETG) with ethylene vinyl acetate (EVA) copolymer via catalysed transesterification reactions was examined through rheological, morphological and mechanical studies. The addition of dibutyltin oxide catalyst was found to diminish the size of the dispersed phase, enhance its adhesion with the matrix and lead to an increase in the dynamic elastic modulus (G’) with temperature. This improvement in adhesion also results in a considerable increase in the elongation at break, from 20 to 140% when 2.4 wt% of catalyst is added to a 70/30 PETG/EVA blend. The comparative behaviour of blends with and without catalyst is explained via copolymer formation at the interface and co-crosslinking of EVA and PETG chains.