This study presents the valorization of cotton waste from the textile industry for the development of sustainable and cost-competitive biopolymer composites. The as-received linter of recycled cotton was first chopped to obtain short fibers, called recycled cotton fibers (RCFs), which were thereafter melt-compounded in a twin-screw extruder with partially bio-based polyethylene terephthalate (bio-PET) and shaped into pieces by injection molding. It was observed that the incorporation of RCF, in the 1–10 wt% range, successfully increased rigidity and hardness of bio-PET. However, particularly at the highest fiber contents, the ductility and toughness of the pieces were considerably impaired due to the poor interfacial adhesion of the fibers to the biopolyester matrix. Interestingly, RCF acted as an effective nucleating agent for the bio-PET crystallization and it also increased thermal resistance. In addition, the overall dimensional stability of the pieces was improved as a function of the fiber loading. Therefore, bio-PET pieces containing 3–5 wt% RCF presented very balanced properties in terms of mechanical strength, toughness, and thermal resistance. The resultant biopolymer composite pieces can be of interest in rigid food packaging and related applications, contributing positively to the optimization of the integrated biorefinery system design and also to the valorization of textile wastes.