Micro- or nano-fibrillar composites (MFCs or NFCs) are created by blending two homopolymers (virgin or recycled) with different melting temperatures such as polyethylene (PE) and poly(ethylene terephthalate) (PET), and processing the blend under certain thermo-mechanical conditions to create in situ fibrils of the polymer that has the higher-melting temperature. These resulting fibrillar composites have been reported to possess excellent mechanical properties and can have wide ranging applications with suitable processing under controlled conditions. However, the properties and applications very much depend on the morphology of created polymer fibrils and their thermal stability. The present paper develops an understanding of the mechanism of micro-/nano-fibril formation in PE/PET and polypropylene (PP)/PET blends by studying their morphology at various stages of extrusion and drawing. It is revealed that this subsequent mechanical processing stretches the polymer chains and creates fibrils of very high aspect ratios, thus resulting in superior mechanical performance of the composites compared to the raw blends. The study also identifies the primary mechanical properties of the main types of MFCs, as well as quantifying their enhanced resistance to oxygen permeability. Furthermore, the failure phenomena of these composites are studied via application of the modified Tsai-Hill criterion. In addition to their usage as input materials in different manufacturing processes, possible applications of these fibrillar composites in two different areas are also discussed, namely food packaging with controlled oxygen barrier properties and biomedical tissue scaffolding. Results indicate a significant scope for using these materials in both areas.