The increasing worldwide waste of polymers and agricultural products has prompted a pressing need for biodegradable plastic to help protect the environment. Hence, this research focuses on polybutylene adipate-co-terephthalate (PBAT) biodegradable polymers containing between 30–50 percent of filler to achieve an optimal balance of mechanical properties and biodegradation. Given its high lignin content, rice husk has displayed comparable properties to those of commercial lignin, and thus, the lignin from the rice husk was modified with acrylic acid grafting to facilitate the composite fabrication process. Fourier transform infrared (FTIR) analysis was used to demonstrate the grafting synergy and verify that the lignin/rice husk had been successfully grafted with the acrylic acid grafting process. Subsequently, the acrylic acid grafted lignin/rice husk was incorporated into PBAT to create a PBAT composite containing 30–50% AA lignin. The results revealed that the lignin: PBAT ratio at 30:70 (P70L30) resulted in the most optimum mechanical properties and biodegradability. These included tensile strength of 19.48 MPa, elongation at break of 20.26 MPa, Young’s modulus of 1913.62%, and crystallinity of 31.45%. The biodegradation of P70L30 was 57.36% over the 6 months, which was faster than the 9.2% degradation of PBAT. Additionally, the water absorption of P70L30 was two times more compared to PBAT, indicating the change in hydrophobicity of PBAT to a hydrophilic composite. Agricultural waste-rice husk displayed identical properties to lignin when incorporated into PBAT and resulting in the mechanical properties of strength, elongation at yield, and Young’s modulus of 19.09 MPa, 21.87%, and 1936.98MPa. The mechanical properties and biodegradability of P70L30 on both lignin/rice husk in PBAT composite demonstrated the potential of affordable materials to create sustainable packaging solutions with good biodegradability and added features.