Poly(lactic acid) (PLA) incorporated with poly(butylene succinate) (PBS) through in situ reactive blending is proposed to retard thermal shrinkage. Succinic anhydride (SA) with varied contents (0.01–0.5 phr) was used as a reactive compatibilizer to enhance miscibility between PLA and PBS phases. The success of PLA chemically bound with PBS chains through simple esterification to form PLA‐SA‐PBS phase is confirmed and quantified using an X‐ray photoelectron spectroscopy technique. The binding energy intensity ratio of ester and hydrocarbon in the PLA/PBS/SA blend with 0.5 phr SA increases for two‐fold, as compared to the PLA/PBS blend. The good interfacial adhesion of PLA and PBS phases is achievable with SA content up to 0.1 phr. In addition, the PLA‐SA‐PBS molecules preferentially support crystallization of PBS phase with increased degree of crystallinity (Xc,PBS) by ~15%. These enhanced homogeneity of PLA/PBS/SA blend and high Xc,PBS trigger the increased tensile strength to 50 MPa, and substantially reduced oxygen permeation coefficient approximately 10 times. Remarkably, the interpenetration of PLA‐SA‐PBS phase in amorphous PLA region coexisting with uniformly dispersed PBS crystals inhibits the PLA chain relaxation and deformation at elevated temperatures, leading to maintaining dimensional stability of PLA/PBS/SA films without shrinkage at 100°C.