Abstract: A method of manufacturing a composite yarn and composite yarn produced thereby in which a spandex yarn is fed to an air entangling or covering jet while being pre-elongated. Simultaneously, a multifilament partially oriented thermoplastic yarn is fed to the yarn entangling or covering jet while being partially or completely drawn to orient further or completely the thermoplastic yarn. The thermoplastic and spandex yarns are fed through the yarn jet while the filaments of the thermoplastic yarn are entangled to produce a composite yarn with the spandex yarn as the core and the thermoplastic yarn as a covering therefor. The composite yarn is then fed through a false twister and false twisted with the false twist being heat set in the thermoplastic yarn at a temperature which does not adversely affect the spandex core to produce an air entangled false twist texturized composite yarn.