Both polylactide (PLA) and poly(butylene adipate-co-terephthalate) (PBAT) are biodegradable polymers. They are thermoplastics which can be processed using most conventional polymer processing methods. PLA is high in strength and modulus (63 MPa and 3.4 GPa, respectively) but brittle (strain at break 3.8%) while PBAT is flexible and tough (strain at break approximately 710%). In view of their complementary properties, blending PLA with PBAT becomes a natural choice to improve PLA properties without compromising its biodegradability. In this study, PLA and PBAT were melt blended using a twin screw extruder. Melt elasticity and viscosity of the blends increased with the concentration of PBAT. Crystallization of the PLA component, phase morphology of the blend, mechanical properties, and toughening mechanism were investigated. The blend comprised an immiscible, two-phase system with the PBAT evenly dispersed in the form of approximately 300 nm domains within the PLA matrix. The PBAT component accelerated the crystallization rate of PLA but had little effect on its final degree of crystallinity. With the increase in PBAT content (5-20 wt %), the blend showed decreased tensile strength and modulus; however, elongation and toughness were dramatically increased. With the addition of PBAT, the failure mode changed from brittle fracture of the neat PLA to ductile fracture of the blend as demonstrated by tensile test and scanning electron microcopy (SEM) micrographs. Debonding between the PLA and PBAT domains induced large plastic deformation in PLA matrix ligaments.