Attempt was made to enhance the physical properties of fully bio-based incompatible polylactide (PLA)/polyamide 11 (PA11) blend by using ethylene-butyl acrylate-glycidyl methacrylate terpolymer (EBA-GMA) as both compatibilizer and impact modifier. Interfacial energy measurements predicted that the EBAGMA would localize at the interface of components in PLA/PA11 samples. Morphological investigations demonstrated a combination of complete wetting and partial wetting phase structure for PLA/PA11/EBA-GMA (70/30-x/x) systems containing 30 wt% modifier phases. When presented at 10–15 wt%, EBA-GMA formed an interfacial layer around the minor PA11 phase domains and produced a fine dispersion of PA11 in the PLA. Increasing EBA-GMA to 20 wt% led to a reduction in the degree of encapsulation of PA11 by EBA-GMA, and a coarser dispersion of EBA-GMA was also observed in the resulting ternary blend. Compatibility between the components of the PLA/PA11/EBA-GMA ternary samples was investigated by dynamic mechanical analysis (DMA). The maximum impact toughness was achieved for PLA/PA11/EBA-GMA (70/15/15) blend, which exhibited the excellent dispersion state of both PA11 and EBA-GMA phases in the PLA. Impact fractography revealed the generation of multiple voids and cavities either around the PA11 or inside the EBA-GMA phase regions during the fracture process. The generation of such micro-voids followed by their plastic growth during crack propagation activated plastic deformation of the PLA, serving as the primary source in the dissipation of impact fracture energy.