High-melting-temperature poly(ethylene terephthalate) (PET) was successfully introduced into wood plastic composites through a two-step reactive extrusion technology. Wood flour was added into pre-prepared PET/high density polyethylene (HDPE) microfibrillar blends (MFBs) in the second extrusion at the temperature for processing HDPE. Addition of 25% in situ formed PET microfibers obviously increased the mechanical properties of HDPE, and more significant enhancement by the in situ formed recycled PET microfibers was observed for the recycled HDPE. Adding 2% E-GMA improved the compatibility between matrix and microfibers in MFBs, resulting further enhanced mechanical properties. The subsequent addition of 40% wood flour did not influence the size and morphology of PET microfibers, and improved the comprehensive mechanical properties of MFBs. The wood flour increased the crystallinity level of HDPE in the compatibilized MFB in which PET phase did not crystallize. The storage modulus of MFB was greatly improved by wood flour.