Bi 2 Te 2.7 Se 0.3 (BTS) is known to be the unique ntype commercial thermoelectric (TE) alloy used at room temperatures, but its figure of merit (ZT) is relatively low, and it is vital to improve its ZT for its wide applications. Here, we show that incorporation of an appropriate amount of GaAs nanoparticles in BTS not only causes the large enhancement of Seebeck coefficients because of energy-dependent carrier scattering, but also gives rise to drastic reduction of lattice thermal conductivity κ L . Specifically, ultralow κ L ∼ 0.27W m −1 K −1 (at 300 K) is achieved for the composite sample incorporated with a 0.3 wt % GaAs nanophase, which is proved to originate mainly from the intensified phonon scattering by the GaAs nanoinclusions and interfaces between the GaAs and BTS matrix. As a result, a maximum ZT = 1.19 (∼372 K) and an average ZT ave = 1.01 (at T = 300−550 K) are reached in the composite sample with 0.3 wt % GaAs nanoinclusions, which are respectively ∼78% and ∼82% larger than those of the BTS matrix in this study, demonstrating that incorporation of the GaAs nanophase is an effective way to improve TE performance of BTS.