Poly(butylene adipate-co-terephthalate) (PBAT) is a biodegradable polymer with high ultimate elongation but low modulus. This work studied the addition of a rigid bio-based and biodegradable polymer, poly(lactic acid) (PLA), along with organically modified silicate layers as a conceivable means to improve the modulus of PBAT. Blending with PLA would also reduce both the cost of the ultimate blend and its dependence on nonrenewable resources. Compounds of PBAT with PLA and organically modified silicate layers showed significantly improved tensile and flexural strength resulting in enhanced thermomechanical performances compared to neat PBAT. The state of clay dispersion was evaluated using common analytical techniques such as transmission electron microscopy, X-ray diffraction, and rheometry. The clay platelets were partially dispersed in a PBAT and PLA phase and a large portion of the platelets were located at the interface. The incorporation of organoclay reduced the dispersed phase domain (i.e., PLA) size significantly. The smaller PLA size however, did not translate into better elongational properties. POLYM. ENG. SCI., 2012. (C) 2012 Society of Plastics Engineers