To evaluate the compatibilization effects of an isocyanate group on poly(ethylene terephthalate)/polypropylene (PET/PP) blends through a reactive blend, PP grafted with 2-hydroxyethyl methacrylate-isophorone diisocyanate (PP-g-HI) was prepared and blended with PET. In view of the blend morphology, the presence of PP-g-HI reduced the particle size of the dispersed phase by the reduced interfacial tension between the PP and PET phases, indicating the in situ copolymer (PP-g PET) generated during the melt blending. The DSC thermograms for the cooling run indicated that the PET crystallization in the PP-g-HI rich phase was affected by the chemical reactions of PET and PP-g-HI. The improved mechanical properties for the PET/PP-g-HI blends were shown in the measurement of the tensile and flexural properties. In addition, the water absorption test indicated that the PET/PP-g-HI blend was more effective than the PET/PP blend in improving the water resistance of PET. The positive properties of PET/PP-g-HI blends stemmed from the improved compatibilization of the PET/PP blend.