In the present investigation, we report on the thermoelectric properties of PbSe₀.₅Te₀.₅: x (PbI₂) from room temperature to 625 K. High-resolution transmission electron micrographs of the samples reveal endotaxial nanostructures embedded in a PbSe₀.₅Te₀.₅ matrix. The combined effect of mass fluctuation and nanostructures reduces the thermal conductivity to a great extent compared to PbTe and PbSe, without affecting the carrier mobility. As a result, a thermoelectric figure of merit with a value of 1.5 is achieved at 625 K. This value is significantly higher than that of the available state-of-the-art n-type materials.