Isocyanate-terminated polyethylenes (PE), PE-MDI and PE-PMDI, were synthesized by reacting polyethylene monoalcohol (PEA) with 4,4'-methylenediphenyl diisocyanate (MDI) and polymeric methylene diphenyl diisocyanate (PMDI), respectively. Effects of PEA, PE-MDI, and PE-PMDI on the mechanical properties and water resistance of wood-PE composites were investigated. All three compatibilizers increased the strength of the wood-PE composites. Composites containing PE-MDI or PE-PMDI exhibited a higher modulus of rupture (MOR) than those with PEA. The addition of PE-MDI and PE-PMDI decreased the water uptake rate of the composites while PEA increased this rate. The superior compatibilization effects of PE-MDI and PE-PMDI were attributed to the formation of covalent bonding between isocyanate and wood. This covalent bonding was demonstrated by the FTIR spectra of the wood residues after a p-xylene extraction. Scanning electron microscope (SEM) images revealed that isocyanate-terminated PE samples improved the interfacial adhesion between wood and PE.