Various blends of gelatinized cornstarch and two biodegradable polyesters, PCL or PBSA, were prepared via melt processing using a twin-screw extruder. Distribution of a compatibilizer MDI (methylenediphenyl diisocyanate) was controlled through the processing conditions employed and its effect on the resultant microstructure and mechanical properties of the blends were studied by SEM, DSC, TGA, and mechanical testing. When the MDI was distributed in the starch phase, the highly reactive isocyanate groups in MDI were most probably consumed by water that resulted in an overall weakening of its compatibilizing effect. Modulus, yield strength, and impact strength were increased by more than 35, 40, and 300%, respectively, when MDI was distributed in the polyester phase first rather than in the starch phase prior to blending. SEM observation showed that the interface between starch and the polyesters was improved significantly while DSC and TGA investigation also confirmed the microstructural difference. (c) 2006 Wiley Periodicals, Inc.