The equilibrium structure and shear response of model polymer-clay nanocomposite gels are measured using X-ray scattering, light scattering, optical microscopy, and rheometry. The suspensions form physical gels via the "bridging" of neighboring colloidal clay platelets by the polymer, with reversible adsorption of polymer segments onto the clay surface providing a short-range attractive force. As the flow disrupts this transient network, coupling between composition and stress leads to the formation of a macroscopic domain pattern, while the clay platelets orient with their surface normal parallel to the direction of vorticity. We discuss the shear-induced structure, steady-shear rheology, and oscillatory-shear response of these dynamic networks, and we offer a physical explanation for the mesoscale shear response. In contrast to flow-induced "banding" transitions, no stress plateau is observed in the region where macroscopic phase separation occurs. The observed platelet orientation is different from that reported for polymer-melt clay nanocomposites, which we attribute to effects associated with macroscopic phase separation under shear flow. (C) 2004 Elsevier Inc. All rights reserved.