The impact strength of the acrylonitrile-co-butadiene-co-styrene terpolymer-poly(2,6-dimethy-1-4-phenylene oxide (ABS-PPO) blends compatibilized with styrene-acrylonitrile modified with glycidil methacrylate (SAN-GMA) terpolymer can be significantly enhanced by the various processing conditions in reaction extrusion. Four different ABS terpolymers are used depending on the composition of acrylonitrile, styrene, and butadiene. The morphology of polybutadiene latex in ABS-1, ABS-3, and ABS-4 is an agglomerated type, while that of ABS-2 is a bimodal one. The three different methods in in situ compatibilizing extrusion are employed; the simple mixing of ABS and PPO, the simultaneous mixing of ABS and PPO, the reactive compatibilizer SAN-GMA, maleic anhydride (MA; designated A-series), and then the stepwise mixing of the mixtures of ABS-SAN-GMA in the MA-modified PPO (designated B-series). Although the ABS-4-PPO blend depicted the highest impact strength in the simple mixing, the ABS-3B-PPO blend showed the best impact strength in the stepwise mixing. The former behavior may be arisen from the high content of BR, whereas the latter may be due to the agglomerated rubber phase with SAN-GMA. The highest impact strength (47 kg.cm.cm(-1)) was observed in ABS-3B-PPO at 50/50 with an inclusion of 10 wt % GMA (2) and 1 wt % MA. Thus, the proposed reaction mechanism is an existence of the compatibility between ABS and SAN-GMA and the reactivity between the MA-modified PPO and SAN-GMA. Phase morphology of the ABS-2-PPO and ABS-3-PPO blends were compared, and more efficient dispersion of ABS was observed in the B-series than in the A-series.