Nanocomposites of polypropylene with organically modified clays were compounded in a twin-screw extruder by a two-step melt compounding of three components, i.e., polypropylene, maleic anhydride grafted polypropylene (PPgMA), and organically modified clay. The effect of PPgMA compatibilizers, including PH-200, Epolene-43, Polybond-3002, and Polybond-3200, with a wide range of maleic anhydride (MA) content and molecular weight was examined. Nanocomposites' morphologies and mechanical properties such as stiffness, strength, and impact resistance were investigated. X-ray diffraction patterns showed that the dispersion morphology of clay particles seemed to be determined in the first compounding step and the further exfoliation of clays didn't occur in the second compounding step. As the ratio of PPgMA to clay increased, the clay particles were dispersed more uniformly in the matrix resin. As the dispersibility of clays was enhanced, the reinforcement effect of the clays increased; however, impact resistance decreased. (c) 2005 Wiley Periodicals, Inc.