The main objective of the present work was to study the role of organoclay on the microfibrillation process of epoxy phase in Poly(butylene terephtalate), PBT, matrix both in presence and absence of epoxy curing agent. The PBT/epoxy blend samples with constant blend ratio (60/40) were prepared by melt mixing in a twin screw extruder. The elongational flow imposed by drawing the extrudate at the die exit permitted controlled generation of fibrile morphology of the dispersed epoxy phase, with a fiber diameter of 0.8,um and an aspect ratio greater than 100. It was shown that when the curing agent was added into the extruder, its reactivity with epoxy at high temperature was high enough and selectively affected on the epoxy phase. The SEM results showed smaller epoxy droplet size for samples containing nanoclay compared to simple blends. This could be explained in terms of hindrance effect of nanoclay in reducing the coalescence as a dominating parameter due to presence of nanoclay in both phases. These results were supported by the melt linear viscoelastic results which showed enhanced low frequency viscosity and storage modulus for these samples. Addition of nanoclay was found to have little effect on extent of fibrillation epoxy droplet in stretched samples. The rheological results obtained for stretched samples showed very strong increase in low frequency solid body response whose extent was increase with increasing draw ratio. This mainly attributed to special 3-D network formed between microfibrils whose shape was stabilized by either presence of nanoclay or accelerated curing process of fibrillated epoxy. From SEM micrographs and linear viscoelastic measurements it can be deduced that curing process has small changes on the extent of fibrillation epoxy droplet in stretched samples. But it leads to improvement of interfacial interaction between two phases in the nanocomposites.