A sterically stabilized aqueous suspension of rodlike cellulose microcrystals was prepared by the combination of acid hydrolysis of native cellulose, oxidative carboxylation of microcrystals, and grafting of poly(ethylene glycol) having a terminal amino group on one end (PEG-NH2, MW = 1000) using water-soluble carbodiimide. Chemical binding of PEG to the microcrystals was confirmed by weight increase, diminishment of carboxyl groups, thermogravimetry, and infrared spectroscopy, resulting in consumption of 20-30% of the initially introduced carboxyl groups. The amount of bound PEG was 0.2-0.3 g/g of cellulose. The PEG-grafted cellulose microcrystals showed drastically enhanced dispersion stability, that is, resistance to addition of 2 M sodium chloride, and ability to redisperse into either water or chloroform from the freeze-dried state. The concentrated aqueous suspension of PEG-grafted microcrystals formed a chiral nematic mesophase through a phase separation similar to that of the ungrafted sample, but with a reduced spacing of the fingerprint pattern.