A series of novel thermoplastic elastomers based on ABA-type triblock prepolymers, poly[(propylene oxide)-(dimethylsiloxane)-(propylene oxide)] (PPO-PDMS-PPO), as the soft segments, and poly(butylene terephthalate) (PBT), as the hard segments, was synthesized by catalyzed two-step melt transesterification of dimethyl terephthalate (DMT) with 1,4-butanediol (BD) and α,ω-dihydroxy-(PPO-PDMS-PPO) (M n = 2930 g mol −1 ). Several copolymers with a content of hard PBT segments between 40 and 60 mass% and a constant length of the soft PPO-PDMS-PPO segments were prepared. The siloxane-containing triblock prepolymer with hydrophilic terminal PPO blocks was used to improve the compatibility between the polar comonomers, i.e. DMT and BD, and the non-polar PDMS segments. The structure and composition of the copolymers were examined using 1 H NMR spectroscopy, while the effectiveness of the incorporation of α,ω-dihydroxy-(PPO-PDMS-PPO) prepolymer into the copolyester chains was controlled by chloroform extraction. The effect of the structure and composition of the copolymers on the transition temperatures (T m and T g ) and the thermal and thermo-oxidative degradation stability, as well as on the degree of crystallinity, and some rheological properties, were studied.