The inclusion complex of thermoplastic polyurethane (TPU) and beta-cyclodextrins (beta-CD) with high TPU contents has been synthesized. The channel structure with large amount of uncovered TPU was confirmed by wide-angle X-ray diffraction (WAXD). High performance poly(oxymethylene) (POM) alloys were fabricated by simply melt mixing neat POM with the synthesized TPU inclusion complex (IC-TPU). The effects of the incorporation of IC-TPU on the structure and properties of POM have been investigated. Scanning electron microscope (SEM) results showed that IC-TPU was dispersed uniformly in POM matrix and there was robust interface between IC-TPU and POM matrix. Tensile test results indicated significant improvement in both strength and ductility of the IC-TPU modified POM as compared with neat POM. Moreover, the incorporation of IC-TPU resulted in the drastically enhanced thermal stability of POM. The initial degradation temperature increased as high as 40 degrees C with the addition of a small amount of IC-TPU. The investigation indicated that the IC-TPU exhibited a novel structure with a soft shell (uncovered TPU) and a hard core (beta-CD covered TPU segments). Such "soft shell-hard core" structure improves not only the elongation at break but also the tensile strength of POM. The superior thermal stability was originated from the synergetic effects of the hydroxyl groups in beta-CDs and the amino groups in TPU. The multifunctional effect of the IC-TPU opens a new avenue for the industrial application of POM.