Hydroxyl‐terminated poly(lactic acid) prepolymer (LA prepolymer) were prepared via L‐lactic acid as monomer, 1,4‐butanediol as blocking agent and Sn(II) octoate as catalyst by direct melt polymerization. Then the LA prepolymer was blended with starch followed by in situ chain extending reaction using different content of TDI as chain extender, producing the high molecular weight of poly(ester urethane) in the blends. The LA prepolymer/starch‐TDI blends were characterized by GPC, 1H‐NMR, SEM, DSC, tensile strength testing, and water resistance. The SEM results of cross‐section show that, compared with the simple PLA/starch blends, almost the starch granules were completely covered by ploy(ester urethane) in the LA prepolymer/starch‐TDI blends system. In comparison to the simple PLA/starch blends, the mechanical properties of LA prepolymer/starch‐TDI blends were increased, such as tensile strength increasing from 18.6 ± 3.8 to 44.2 ± 6.2 Mpa, tensile modulus increasing from 510 ± 62 to 1,850 ± 125 Mpa and elongation at break increasing from 1.8 ± 0.4 to 4.0 ± 0.5 %, respectively. This is attributed to high weight of poly (ester urethane) was formed via in situ reaction of the end of hydroxyl (LA prepolymer) and isocyanate groups and the starch granules were easily covered by ploy(ether urethane) via in situ polymerization in the blends. Moreover, covalent linkage was formed between the two phases interfaces. As a result, the interfacial adhesion was enhance and improved the mechanical property. In addition, the water resistance of LA prepolymer/starch‐TDI blends was much better that of the simple PLA/starch blends. POLYM. COMPOS., 2013 © 2013 Society of Plastics Engineers