Poly(lactic acid)-γ-cyclodextrin inclusion complex-poly(glycidyl methacrylate) (PLA-IC-PGMA) was synthesized with poly(lactic acid) (PLA) and γ-cyclodextrin inclusion complex via surface initiated atom transfer radical polymerization. Then, the PLA/PLA-IC-PGMA composite was prepared by melt blending using PLA-IC-PGMA as additive. Structure and properties of PLA-IC-PGMA and PLA/PLA-IC-PGMA composites were confirmed by X-ray diffraction patterns, 1H nuclear magnetic resonance spectroscopy, Fourier transform infrared spectra, X-ray photoelectron spectroscopy, thermogravimetric analysis, differential scanning calorimetry (DSC), polarized optical microscopy, rheological analysis, etc. Mechanical testing analysis showed that the tensile strength, elongation at break, and impact strength of PLA/(1 wt%) PLA-IC-PGMA composites were improved by 2.3%, 10.8%, and 52.5%, respectively, compared with pure PLA. Scanning electron microscopy analysis demonstrated that the toughness of PLA/PLA-IC-PGMA composite was improved. The results of DSC and TG showed that the cold crystallization peak of PLA composites after the addition of PLA-IC-PGMA disappeared, and its crystallinity was increased by 25% compared with PLA. Furthermore, the thermal stability of PLA/PLA-IC-PGMA composite was improved. Dynamic mechanical analysis showed that the glass transition temperature of PLA/PLA-IC-PGMA composites decreased by 8 °C, which indicated that the flexibility of the chain of PLA was greatly improved. Therefore, the addition of PLA-IC-PGMA improved the comprehensive performance of PLA.