AbstractA binary blend of polylactic acid (PLA) and poly (butylene adipate‐co‐terephthalate) (PBAT), along with algae in their respective composites, were successfully produced using a melt extrusion process. The produced in‐house coupling agent was used to enhance interfacial adhesion and algae dispersion. The influence of algae content incorporated into the compatibilized binary blend was thoroughly investigated, focusing on the bio‐composites morphology, mechanical, and thermal properties. The addition of PLA‐g‐MA to the binary blend led to notable improvements in the storage modulus, mechanical strength, and thermal properties of the binary blend. Subsequently, the introduction of algae into the compatibilized binary blend further augmented the storage modulus, with an optimum algae concentration of 10 wt%. However, higher algae content led to decreased tensile strength, elongation at break, and impact resilience. The optimal balance of these properties was achieved at an optimal loading of 5–10 wt% of algae into the compatibilized binary blend. The thermal stability of the bio‐composites was notably impacted by algae concentration, with the 10 wt% algae bio‐composite exhibiting increased thermal stability. Increasing algae content correlated with decreased bio‐composite crystallinity. These findings underscore the potential of optimized biobased algae composites for achieving desired mechanical and thermal properties, contributing to the development of sustainable and eco‐friendly polymer bio‐composites.