Carbon fibers (CF) are excellent reinforcers for thermoplastic polymer composites owing to their high thermal and mechanical properties. However, their applications are mostly limited to high-end applications such as in aerospace industries due to their relatively higher cost. In this study, it was aimed to improve the properties of CF polypropylene (PP) composites by supporting the matrix with microfibrillar PETs. Low cost recycled PET (rPET) flakes from used PET bottles were in-situ converted into PET fibers during compounding of carbon fibers and PP matrix. Seven different composites were prepared with different rPET contents up to 15 phr, in order to understand the rPET's effect on the physical and mechanical properties of the composites. Maleic anhydride grafted PP (MA-g-PP) compatibilizer was used to improve interfacial adhesion between PP and both of CF and rPET. Additionally, the effect of the compatibilizer content on the mechanical properties was investigated by studying compounds of varying compatibilizer content (0wt%, 2.5wt% and 5wt%). The CF content was fixed to 10wt% in all composites. Scanning electron microscopy (SEM) and energy-dispersive X-ray spectroscopy (EDX) studies showed the formation of microfibrillar PETs in CF-PP composite matrix. In addition, coupling efficiency of the compatibilizer was investigated. Mechanical characterization results showed that the in-situ formation of rPET microfibrils in CF-PP composites significantly improves the tensile, flexural and Izod impact properties. The orientation of the CFs and rPET microfibrils during injection molding process affect the tensile and flexural strength of the composites.