A sustainable multifunctional biobased composite with 61% renewable resource content exhibiting superior toughness was successfully engineered using polylactide (PLA) and organosolv lignin (OL). Reactive extrusion of PLA with OL in presence of poly(vinyl acetate), PVAc and glycidyl methacrylate (GMA) improved interfacial adhesion in resulting a novel biobased elastomer. A constrained mixture design was adopted to evaluate the effect of OL, PVAc and GMA on performance of the composites. Optimized composites displayed superior toughness (elongation at break of ∼340% and notched impact strength of ∼900 J/m) with lowered tensile strength and modulus. FTIR analysis suggested that interfacial adhesion between GMA and PLA occurred during melt processing. One of the most significant findings of this study is the generation of single glass transition temperature of the complex structured composites. This new material offers a sustainable novel strategy for producing high performance PLA materials with value-added uses of lignin to replace petroleum-based thermoplastic elastomers.