Blends of thermotropic liquid crystalline polymer (LCPA-950), based on a copolyester of hydroxynapthoic acid and hydroxybenzoic acid with an engineering thermoplastic, poly(phenylene sulfide) (PPS), were prepared using a corotating twin-screw extruder. Addition of a third component, a functionalized polypropylene (maleic anhydride grafted polypropylene, MA-PP), that interact with the thermotropic liquid crystalline polymer (TLCP) facilitates the structural development of the TLCP phase by acting as a compatibilizer at the interface. Differential scanning calorimetry and dynamic mechanical thermal analysis results, however, show that there is an interaction between the polymers in the presence of compatibilizer. This means that MA-PP can be used as a compatibilizer for the PPS/LCP in situ composite system. The viscosity of the compatibilized in situ composite was decreased by the compatibilizer, and this is mainly due to the fibrous structure of the LCP at the high shear rate. The mechanical properties of the ternary blends were increased when a proper amount of MA-PP was added. This is attributed to fine fibril generation induced by the addition of MA-PP. Morphological observations determined the significance of the third component in immiscible polymer blends, and an optimum amount of MA-PP exists for the best mechanical performance.