Plastics used in the packaging industry, especially in the form of carry bags and pouches, manifest a formidable threat to the environment because of their non-biodegradable nature. Addition of both natural and synthetic fibers to these materials improves their performance, replacing the conventional materials like wood, metal, and ceramics in the majority of industrial applications. Short polyethylene terephthalate (PET) fiber-reinforced composites from waste high density polyethylene (WPE) such as carry bags/pouches collected from municipal solid waste and neat high density polyethylene (HDPE) were prepared in a Brabender Plasticorder using melt-mixing technique under optimum processing conditions. Physico-mechanical properties of these short PET fiber-reinforced WPE and neat HDPE composites were determined using standard procedures. It is observed that the mechanical strength is enhanced by increasing the fiber-loading up to 50% by weight. Maleic anhydride (MAH) grafting was done onto the WPE matrix and the resulting composites were evaluated for their mechanical properties. The thermal stability of the WPE-PET fiber composites also improves significantly with fiber-loading as well as upon grafting the WPE with MAH. Flexural strength exhibited an increase of 59% from 25.4 to 40.5 MPa, proving MAH-grafted WPE (MAH-g-WPE) to have good compatibilizing ability.