In situ thermoplastic/thermoset microfibril nanocomposites were prepared via a two-step process. In the first step, an epoxy dispersed phase is blended with a Poly(butylene terphtalate) (PBT) matrix in a twin-screw extruder. The elongational flow imposed by drawing the extrudate at the die exit permitted controlled generation of fibril morphology of the dispersed epoxy phase. The control of the formation of microfibrils was obtained by quantitative analyses for the deformation of the minor epoxy phase during twin-screw extrusion and stretching at the exit of the die that involve both shear and extensional flows. The mean residence time distribution of materials in the extruder and compatibility of this time with the time for curing of epoxy as a crucial processing parameter was investigated. Morphology and rheological properties of these nanocomposites were compared to equivalent nanocomposites with dispersed spherical particles-type morphology (non-stretched samples).