Enhancing the melt processability of cellulose is key to broadening its applications. This is done via derivatization of cellulose, and subsequent plasticization and/or blending with other biopolymers, such as polylactic acid (PLA) and polybutylene adipate terephthalate (PBAT). However, derivatization of cellulose tends to reduce its biodegradability. Moreover, traditional plasticizers are non-biodegradable. In this study, we report the influence of polyethylene glycol (PEG) plasticizer on the melt processibility and biodegradability of cellulose diacetate (CD) and its blends with PLA and PBAT. CD was first plasticized with PEG (PEG-200) at 35 wt%, and then blended with PLA and PBAT using a twin-screw extruder. Blends of the PEG plasticized CD with PLA at 40 wt% and with PBAT at 60 wt% were studied in detail. Dynamic mechanical analysis (DMA) showed that PEG reduced the glass transition of the CD from ca. 220 °C to less than 100 °C, indicating effective plasticization. Scanning electron microscopy revealed that the CD/PEG-PBAT blend had a smoother morphology implying some miscibility. The CD/PEG-PBAT blend at 60 wt% PBAT had an elongation-to-break of 734%, whereas the CD/PEG-PLA blend had a tensile strength of 20.6 MPa, comparable to that of the PEG plasticized CD. After a 108-day incubation period under simulated aerobic composting, the CD/PEG-PBAT blend at 60 wt% PBAT exhibited a biodegradation of 41%, whereas that of the CD/PEG-PLA at 40 wt% PLA was 107%. This study showed that melt processible, biodegradable CD blends can be synthesized through plasticization with PEG and blending with PBAT or PLA.