Thermoplastic starch (TPS) has three main disadvantages, i.e., poor mechanical properties, low thermal stability and water sensibility. To overcome these disadvantages, TPS properties can be improved by starch modification, adding reinforcements and blending with other polymers. In this research, to prepare modified TPS, starch modification was carried out by in situ modification. The modified TPS was prepared by adding Arenga pinnata palm starch (APPS), glycerol and benzoyl peroxide simultaneously in the twin-screw extruder. Morphology analysis of TPS revealed that the starch granules were damaged and gelatinized in the extrusion process. No phase separation is observed in TPS, which exhibits that starch granules with and without benzoyl peroxide were uniformly dispersed in the matrix. The addition of benzoyl peroxide resulted in increased density of TPS from 1.37 to 1.39 g·cm−3, tensile strength from 7.19 to 8.61 MPa and viscosity from 2482.19 to 2604.60 Pa.s. However, it decreased the elongation at break of TPS from 33.95 to 30.16%, melt flow rate from 7.13 to 5.73 gr/10 min and glass transition temperature from 65 to 52 °C. In addition, the thermal analysis showed that the addition of benzoyl peroxide increased the thermal stability of TPS and extended the temperature range of thermal degradation.