Reactive extrusion is a cost-effective and environmentally-friendly method to produce new materials with enhanced performance properties. At present, reactive extrusion allows in-situ polymerization, modification/functionalization of polymers or chemical bonding of two (or more) immiscible phases, which can be carried out on commonly used extrusion lines. Although reactive extrusion has been known for many years, its application for processing of bio-based polymer blends and composites is a relatively new direction of scientific research. This work presents a literature review on recent advances in the processing of bio-based polymer blends and composites via reactive extrusion. We described compatibilization mechanisms for different types of biodegradable polymeric materials based on: (i) aliphatic polyesters, (ii) aliphatic polyesters/starch and (iii) aliphatic polyester/natural rubber systems. A special attention was focused on conventional and dynamic cross-linking of bio-based polymer blends and composites as an effective way to prepare new materials with unique properties e.g. biodegradable thermoplastic elastomers or shape-memory materials. Advantages and limitations affecting future trends in development of biodegradable polymer blends and composites reactive extrusion are also discussed