Blends of poly(butylene terephthalate) (PBT) and cellulose acetate propionate (CAP) were found to be immiscible. In order to improve the interfacial strength and miscibility of the PBT/CAP blends, a low-molecular-weight poly(ethylene glycol) (PEG) was thus pre-mixed with the CAP to form the P-CAP mixture. It was then blended with the PBT up to 15 wt% using a twin-screw extruder to prepare the PBT/P-CAP blends, and subsequently processed into the films and fibers by compression-molding and melt-spinning, respectively. The thermal and dynamic mechanical analyses suggested that the PBT and CAP became partially miscible and the interfacial strength was thus improved in the PBT/P-CAP blends, owing to the addition of PEG. The PEG was not only miscible with the CAP but also with the PBT, and it served as a plasticizer as well as a compatibilizer. From the observation of the fractured surface of the PBT/P-CAP films, the PBT component was present as dispersed particles in the P-CAP matrix with size ranging from 1.4 to 3.0 μm; yet it became nanofiber in the spun fibers. Successful fibers of the PBT/P-CAP blends with an average diameter of 20 μm could be spun, where the tensile strength and elongation at break were in the range of 0.6−0.7 g/denier and 12−16%, respectively. Finally, the ultra-fine PBT nanofibers with diameters in the range of 50−70 nm were observed after removing the P-CAP matrix with acetone from the fibers, owing to the formation of PBT nanofibers during spinning and orientation processes. This method thus could successfully produce nano-scale PBT fibers with fineness comparable with the nanofibers developed via electrospinning technology.