Most textile waste is either incinerated or landfilled today, yet, the material could instead be recycled through chemical recycling to new high-quality textiles. A first important step is separation since chemical recycling of textiles requires pure streams. The focus of this paper is on the separation of cotton and PET (poly(ethylene terephthalate), polyester) from mixed textiles, so called polycotton. Polycotton is one of the most common materials in service textiles used in sheets and towels at hospitals and hotels. A straightforward process using 5–15 wt% NaOH in water and temperature in the range between 70 and 90 °C for the hydrolysis of PET was evaluated on the lab-scale. In the process, the PET was degraded to terephthalic acid (TPA) and ethylene glycol (EG). Three product streams were generated from the process. First is the cotton; second, the TPA; and, third, the filtrate containing EG and the process chemicals. The end products and the extent of PET degradation were characterized using light microscopy, UV-spectroscopy, and ATR FT-IR spectroscopy, as well as solution and solid-state NMR spectroscopy. Furthermore, the cotton cellulose degradation was evaluated by analyzing the intrinsic viscosity of the cotton cellulose. The findings show that with the addition of a phase transfer catalyst (benzyltributylammonium chloride (BTBAC)), PET hydrolysis in 10% NaOH solution at 90 °C can be completed within 40 min. Analysis of the degraded PET with NMR spectroscopy showed that no contaminants remained in the recovered TPA, and that the filtrate mainly contained EG and BTBAC (when added). The yield of the cotton cellulose was high, up to 97%, depending on how long the samples were treated. The findings also showed that the separation can be performed without the phase transfer catalyst; however, this requires longer treatment times, which results in more cellulose degradation.