Acetaldehyde is one of the well‐known undesirable by‐product formed during different stages of polyethylene terephthalate manufacturing process. The migration of acetaldehyde from polyethylene terephthalate, even at trace levels of 10–25 ppb is known to adversely impact organoleptic property of water and/or beverages. We are reporting for the first time in‐situ formation of acetaldehyde in polyethylene terephthalate pellets due to the presence of residual levels of 2‐methyl 1, 3‐dioxolane in the final polymer. A new insight on generation of acetaldehyde through hydrolysis of 2‐methyl 1, 3‐dioxolane present in polyethylene terephthalate resin has been established through water spiking studies in a controlled environment. Further, systematic studies were conducted to also understand the mechanism of formation of 2‐methyl 1, 3‐dioxolane during the polyethylene terephthalate manufacturing.