The disadvantages of the poor mechanical properties of polylactic acid (PLA) limit its ability to be used in a wide number of applications. Melt blending of PLA and thermoplastic polyester elastomer (TPEE) has been performed in an effort to toughen the PLA without significant losses in modulus and ultimate tensile strength. In order to enhance the compatibility of PLA and TPEE, a diisocyanate compound was used as a reactive modifier. The thermal and mechanical properties, miscibility and phase morphologies of the blends were investigated. A blend of PLA and TPEE with a modifier does not lead to an important drop in tensile strength and modulus whereas the elongation at break is characterized by a significant increase (above 300%), compared with that of neat PLA and PLA/TPEE. The blends of PLA/TPEE/Modifier were found by thermal and fractured surface analysis to be an immiscible system with the addition of a modifier. However, the relative ductility of PLA/TPEE/Modifier is 34 times higher than that of neat PLA. The brittle fracture of neat PLA was transformed into a ductile fracture by the addition of a modifier.