An in-situ compatibilized starch (St) and polyacrylonitrile (PAN) composite spinning solution was designed by preparing starch-graft-polyacrylonitrile (St-g-PAN) through graft copolymerizing acrylonitrile from soluble starch and using ammonium cerium nitrate (CAN) as initiator. As dimethyl sulfoxide (DMSO) was used as the solvent, St/St-g-PAN/PAN/DMSO spinning solution was prepared and St/St-g-PAN/PAN composite fibers were obtained by dry-wet spinning technique. The effects of air gap, coagulation bath, hot drawing and stretching, and thermal-setting process were studied in detail. Fourier transform infrared spectroscopy (FT-IR), solid state nuclear magnetic resonance (¹³C NMR), thermogravimetric analysis (TGA), X-ray diffraction analysis (XRD), and scanning electron microscopy (SEM) were used to characterize the structure and morphology of the copolymer and the fibers. Single fiber strength tester and sonic orientation instrument were performed to measure the fiber mechanical properties and orientation degrees. The results showed that as the grafting ratio ~150.0% and the reacting mixture containing St ~9.8%, St-g-PAN ~81.6%, and homo-PAN ~8.6% in DMSO solution with 6.0 wt% in concentration were used, the spinning parameters such as air gap ~35 mm, coagulation bath concentration ~70%, temperature ~25 °C, and positive stretching ~48%, hot drawing and stretching 6 times at 80 °C, thermal-setting at 90 °C for 3 h under constant length mode were met, composite fibers with breaking strength 3.41 cN·dtex⁻¹, breaking elongation 14.41%, sonic orientation factor 0.625, moisture recovery ratio 10.53% under standard condition (1 atm, 22 °C, and relative humidity 65%), and boiling water shrinkage ratio 9.60% were obtained. The as prepared composite fiber was better than common viscose fiber 2.11 cN·dtex⁻¹ and cotton fiber ~3.24 cN·dtex⁻¹ and expected to be used in the fields of medical gauze, bandage, protective clothing, et al. besides of common textiles. The in-situ compatibilization method can be applied in preparation of other composite polymer materials.