The flame retardancy of an engineering plastic, poly(butylene terephthalate) (PBT), with a biobased flame retardant (FR) made from phosphorylated linseed oil (PLO) and phosphorylated downstream corn oil (PCO) was studied. Different phosphorus moieties were incorporated into the vegetable oil backbone through a ring-opening reaction. The chemical structure of the phosphorylated oil was confirmed by Fourier-transform infrared (FTIR) and nuclear resonance magnetic (NMR) spectroscopy. It was found that the incorporation of only 7.5 wt% of PLO was sufficient to change the UL-94 fire class of PBT from non-rating to V-0. The flame-retardancy mechanism of the PBT/PLO blends was evaluated from TGA-FTIR analysis. The combined effects of the gas phase mechanism and the dripping tendency of the blends aided to retard the flame propagation effectively. As the synthesized PLO and PCO contained high free fatty acids, the acid-ester exchange reaction occurred in the blends to form oligomers during the ignition. As a result, the blend dripped immediately and the drips carried all the heat to prevent fire. This work suggests that this sustainable biobased FR could be a desirable alternative to halogen-based FRs for PBT and other engineering polymers to develop more environmentally friendly FR products for various future applications.