A series of aliphatic-aromatic copolyesters based on poly(butylene terephthalate) (PBT) and poly(lactic acid) (PLA) have been synthesized by means of a novel reactive blending procedure coupled with polycondensation in melt. The obtained copolymers were further compared with PBT and PLA homopolymers and PBT/PLA non-compatibilized physical blends in order to investigate the effect of transesterification reactions on the structural, morphological, thermal and mechanical performance. Properties of the obtained materials have been found strictly dependent on the preparation process and blend/copolymer composition. The PBT/PLA physical blends appeared as highly crystalline, phase separated systems that exhibit brittle behavior. On the other hand, the applied method of reactive blending enhanced interfacial adhesion and promoted the arrangement of PBT and PLA in blocks of different lengths. Although the PBT-b-PLA copolyesters were found to be miscible in amorphous phase, the phase separation that has arisen from PBT crystalline domains occurs. Along with an increase in PLA weight fraction in copolymers, the length of aromatic sequences decreased which in turn resulted in shifting the values of melting temperatures (T m) toward lower ones and decreased the degree of crystallinity (x c). Moreover, PBT-b-PLA copolymer with 30 wt% of PLA units has been demonstrated as a promising thermoplastic shape memory polymer (SMP) with a switching temperature of 35°C.