Nanocomposites based on biodegradable polycaprolactone (PCL) and organically modified layered silicates (organoclay) were prepared by melt mixing. Their structures and properties were characterized by wide-angle X-ray diffraction, thermal analysis, and rheological measurements. The exfoliation of the organoclay was achieved via a melt mixing process in an internal mixer and showed a dependence on the type of organic modifier, the organoclay contents, and the processing temperature. The addition of the organoclay to PCL increased the crystallization temperature of PCL, but a high content of the organoclay could show an inverse effect. The PCL/organoclay nanocomposites showed a significant enhancement in their mechanical properties and thermal stability due to the exfoliation of the organoclay. The nanocomposites showed a much higher complex viscosity than the neat PCL and significant shear-thinning behavior in the low frequency range. The shear storage modulus and loss modulus of the nanocomposites also exhibited less frequency dependence than the pure PCL in the low frequency range, and this was caused by the strong interactions between the organoclay layers and PCL molecules and by the good dispersion of exfoliated organoclay platelets in the PCL. (C) 2003 Wiley Periodicals, Inc.