PbTe is a premiere mid-range temperature thermoelectric material and recent studies have proven nanostructing as an effective approach to reduce thermal conductivity of alloys. Whereas, little attention has been given to long-term thermal stability of secondary phases and microstructural evolution. Interestingly, replacing Te with S in PbTe provides an opportunity to form nanostructures in the bulk material through spinodal decomposition, which appears in binary phase diagrams of the PbTe–PbS system. Herein, the critical composition of PbTe0.38S0.62 alloy is fabricated to n-type by chlorine doping. Thermoelectric transport properties of the alloy are investigated in the 300–850 K temperature range and the maximum zT achieved at 800 K is 0.75 with a predicted zT ∼ 0.85 at 750 K from single parabolic band model. The microstructure of the sintered samples was studied by FEG-SEM for both the as sintered and post transport properties measurement. The experimental results are compared with estimates from the parallel and series models for heterogeneous composites of single phase PbTe and PbS. The Seebeck coefficient is in agreement with the models predictions, but the resistivity is higher and the thermal conductivity is much lower than predicted values. We propose that this is attributed to the phonon and electron scattering on solute atoms in solid solutions and at interfaces.