A highly compatibilized biodegradable composite with high impact strength including: (a) a polymeric matrix having one or more biodegradable polymers; (b) one or more fillers; and (c) free radical initiators are fabricated via one-step reactive extrusion method. An in-situ free radical reaction method of manufacturing the biodegradable composite, including the step of (a) (1) mixing one or more biodegradable polymers and a free radical initiator; (2) melting step (1) thereby manufacturing the highly compatibilized biodegradable matrix. (b) Mixing the composites of step (a) and fillers or second biodegradable polymers, thereby manufacturing the biodegradable composite. Also, nano-blends are successfully prepared in this invention ascribe to the improved compatibility of the different components.