Abstract: Poly(lactic acid) (PLA) fibers suffer from inherent brittleness to maintain their environmentally friendly properties. Taking palm oil-derived thermoplastic polyurethane (POPU) as a toughening agent, this study aims to prepare a series of high-performance POPU/PLA composite fibers using melt blending and spinning. The POPU was synthesized via a two-step polycondensation reaction, using palm oil-derived polyol and hexamethylene diisocyanate. Its chemical structure was characterized by nuclear magnetic resonance (NMR) spectroscopy. A systematic investigation was finally made to clarify the effects of POPU content (ranging from 0 to 5 wt%) on the chemical structure, interfacial interaction, thermal properties, crystallization behavior, mechanical properties, and fracture morphology of the composite fibers. The results indicated that the tertiary amide groups in the POPU molecular chains were used to catalyze a slight interfacial reaction between POPU and PLA during melt processing. Thereby, the covalent linkages were formed to effectively improve the interfacial compatibility, as evidenced by the splitting of carbonyl absorption peaks in FTIR spectra. There was a great variation in molecular weight distributions from GPC analysis. The elongation at break and tensile toughness of the composite fibers improved significantly as the POPU content increased. Once the POPU content reached 3%, the composite fibers exhibited optimal mechanical properties, with elongation at break and tensile toughness increasing by 144% and 50%, respectively, compared with neat PLA fiber. Furthermore, the optimal formulation was achieved in the POPU content of 3%, due to the 5% increase without any improvement in toughness. Meanwhile, the tensile strength and elastic modulus of the fibers decreased progressively with increasing POPU content, due to the softer POPU phase and the resultant reduction in PLA crystallinity. DSC analysis revealed that the POPU substantially influenced the crystallization behavior of PLA. The cold crystallization temperature (Tcc) shifted to higher values. While the degree of crystallinity (Xc) dropped markedly from 13.71% for neat PLA to only 1.86% for the composite fiber with 5% POPU. It infers that the POPU chains restricted the mobility and arranged configuration of PLA polymer chains. TGA results showed that the thermal stability of fibers slightly decreased with the increasing POPU content, which was attributed to the lower thermal decomposition temperature of the urethane groups in POPU. DMA measurements demonstrated that the incorporation of POPU enhanced the energy dissipation of the fibers, as evidenced by the increasing height of the tanδ peak. Furthermore, SEM observation revealed that the tensile fracture surfaces transitioned from a smooth and flat brittle fracture in the pure PLA fibers to a rough and ductile fracture in the POPU-modified fibers, particularly with the plastic deformation, fibrillar structures, and sea-island phase morphology. These characteristics were attributed to the energy-dissipating mechanisms, such as matrix shear yielding and cavitation, which collectively contribute to high toughness. In conclusion, the fully bio-based composite fibers can be fabricated to serve as high-performance, environmentally friendly fiber materials, thereby expanding the potential applications of PLA in high-strength and flexibility areas, such as textiles, medical devices, and sustainable packaging.