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This study explores the addition of thyme and cinnamon essential oils into poly(lactic acid) (PLA) and poly(butylene adipate-co-terephthalate) (PBAT) blends to enhance their properties for sustainable packaging applications. The essential oils were added at 5 and 10 wt % into PLA/PBAT blends (80:20, wt %), and their effects on melt flow behavior, thermal and rheological properties, mechanical performance, and morphological structure were evaluated. Results indicate that the addition of essential oils substantially alters the properties of PLA/PBAT blends. Cinnamon oil showed a marked increase in the melt flow index, indicating a pronounced plasticizing effect, while thyme oil promoted enhanced ductility, increasing elongation at break from approximately 101% for the neat blend to about 171% at 10 wt % without compromising structural integrity. Thermal analyses revealed slightly enhanced thermal stability, with Tmax shifting by approximately 5–8 °C, and modifications in dynamic crystallization behavior. Rheological assessments confirmed a reduction in complex viscosity, which decreased by roughly 40% at low frequencies, along with the predominance of viscous behavior in oil-containing samples. Mechanical tests showed that although essential oils generally reduce modulus and tensile strength─with Young’s modulus decreasing by about 15–25% depending on oil type─thyme oil contributes to higher elongation at break and improved toughness, increasing toughness by approximately 2.5-fold at 10 wt %. SEM analysis confirmed the immiscibility between PLA and PBAT and showed that essential oil incorporation alters the phase morphology. Overall, the findings highlight the potential of essential oils as functional additives capable of modulating the properties of biodegradable polymer blends for active packaging systems.