Blends of a polyester elastomer (PEL) having a hard segment of polyester (PBT) and soft segment of polyether (PTMG) and a liquid crystalline copolyester (LCP), poly(benzoate-naphtoate), were prepared in a twin-screw extruder. Specimens for mechanical testing were prepared by injection molding. The morphology of the LCP/PEL blends was characterized under different processing conditions. To determine what conditions were necessary for the development of a fibrillar morphology of LCP, we have studied the effect of processing method (extrusion and injection molding), injection molding temperature (below and above the melting point of LCP), and gate position in the mold (direct gate and side gate). SEM studies revealed that some extensional flow was required for the fibrillar formation of LCP and the fibrillar structure of LCP was controlled by the processing method. The morphology of the blends was found to be affected by their compositions and processing conditions. SEM studies revealed that finely dispersed spherical domains of LCP were formed in the PEL matrix and the inclusions were deformed in fibrils from the spherical droplets with increasing LCP content and injection temperature. The mechanical properties of the LCP/PEL blends were also found to be affected by their compositions and processing conditions. The mechanical properties of LCP/PEL blends were very similar to those of polymeric composite. An attempt was made to correlate the structure of the blends from the scanning electron microscope with the measured mechanical properties. All of the aspects of the morphology were possible to explain in terms of the mechanical properties of the blends. A DSC study revealed that the crystallization of PEL was accelerated by the addition of LCP in the matrix and a partial compatibility between LCP and PEL was predicted. The rheological behavior of the LCP/PEL blends was found to be very different from that of the parent polymers, and significant viscosity reductions were observed in the blend consisting of only 5 wt% of LCP.