The pyrolysis of polyethylene terephthalate (PET) under steam atmosphere is an effective method for reducing impurities and improving the yield of terephthalic acid (TPA). However, the yield is still low compared to the theoretical maximum. Here, further improvements were achieved through the steam-assisted co-pyrolysis of PET and polypropylene (PP). The results showed that the presence of PP inhibits the excessive cracking of PET and promotes the complete cracking of PP to gaseous products. The optimal reaction temperature was found to be 450 °C, with a maximum yield of solid of 85.0 wt%, representing an increase compared to the pyrolysis of pure PET. Further, a large amount of olefin monomer was obtained, and the proportion of carbon dioxide in the gaseous products was reduced to 47.7 vol%, which not only improves the efficiency of resource recovery but also reduces carbon emissions. The reaction mechanism of the co-pyrolysis was also explored through analysis of the products in the co-pyrolysis process and by comparing the measured data with theoretical predictions. It was noticed that TPA has a promoting effect on the pyrolysis of PP. This is mainly because TPA is a highly thermally stable Bronsted acid, which can still provide the acidic catalytic site when PP was thermally decomposed during the co-pyrolysis process. Further, a new hydrogen transfer reaction pathway between PP and PET was discovered via isotope tracing experiments, with density functional theory simulations by Material Studio indicating that this pathway occurs between the active hydrogen on the methyl group of PP and the hydrogen on the benzene ring of PET. This study demonstrates that the monomer yield can be improved through the co-pyrolysis of mixed plastics under steam atmosphere, which has important implications for industrial waste plastic recycling applications.