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PET knitted fabric was melted and cooled by hot pressing at 250 °C to obtain a compacted sheet. Only white PET fabric (WF_PET) was used to study the recycling process by compression and grinding to powder and then melt spinning at different take-up speeds compared to PET bottle grade (BO_PET). PET knitted fabric had good fiber formability and was better suited for melt spinning of recycled PET (<i>r</i>-PET) fibers than the bottle grade. Thermal and mechanical properties of <i>r</i>-PET fibers improved in terms of crystallinity and tensile strength with increasing take-up speed (500 to 1500 m/min). Fading and color changes from the original fabric were relatively small compared with PET bottle grade. Results indicated that fiber structure and properties can be used as a guideline for improving and developing <i>r</i>-PET fibers from textile waste.