Nanocomposites from polyurethane (PU) and montmorillonite (MMT) were prepared under melt-mixing condition, by a twin screw extruder along with a compatibilizer to enhance dispersion of MMT. MMT used in this study was Cloisite 25A (modified with dimethyl hydrogenated tallow 2-ethylhexyl ammonium) or Cloisite 30B (modified with methyl tallow bis-2-hydroxyethyl ammonium). Maleic anhydride grafted polypropylene (MAPP) was used as the compatibilizer. XRD and TEM analysis demonstrated that melt mixing by a twin-screw extruder was effective in dispersing MMT through the PU matrix. The PU/Cloisite 30B composite exhibited better interlayer separation than the PU/Cloiste 25A composite. Nanoparticle dispersion was the best at 1 wt % of MMT and improved with compatibilizer content for both composites. Properties of the composites such as complex viscosity and storage modulus were higher than that of a pure PU matrix and increased with the increase in MMT content, but decreased with the increase in compatibilizer content. (c) 2007 Wiley Periodicals, Inc.