Poly(styrene-ethylene/butylene-styrene) (SEBS) was used as a compatibilizer to improve the thermal and mechanical properties of recycled poly(ethylene terephthalate)/linear low-density polyethylene (R-PET/LLDPE) blends. The blends compatibilized with 0-20 wt % SEBS were prepared by low-temperature solid-state extrusion. The effect of SEBS content was investigated using scanning electron microscope, differential scanning calorimeter, dynamic mechanical analysis (DMA), and mechanical property testing. Morphology observation showed that the addition of 10 wt % SEBS led to the deformation of dispersed phase from spherical to fibrous structure, and microfibrils were formed at the interface between two phases in the compatibilized blends. Both differential scanning calorimeter and DMA results revealed that the blend with 20 wt % SEBS showed better compatibility between PET and LLDPE than other blends studied. The addition of 20 wt % of SEBS obviously improved the crystallizibility of PET as well as the modulus of the blends. DMA analysis also showed that the interaction between SEBS and two other components enhanced at high temperature above 130 C. The impact strength of the blend with 20 wt % SEBS increased of 93.2% with respect to the blend without SEBS, accompanied by only a 28.7% tensile strength decrease.