In this study, montmorillonite (MMT)/poly (epsilon-caprolactone)-based polyurethane cationomer (MMT/ PCL-PUC) nanocomposites were prepared and their mechanical properties, thermal stability, and biodegradability were investigated. PCL-PUC has 3 mol % of quaternary ammonium groups in the main chain. The MMT was successfully exfoliated and well dispersed in the PCL-PUC matrix for up to 7 wt % of MMT. The 3 mol % of quaternary ammonium groups facilitated exfoliation of MMT. The I wt % MMT/PCL-PUC nanocomposites showed enhanced tensile properties relative to the pure PCL-PU. As the MMT content increased in the MMT/PCL-PUC nanocomposites, the degree of microphase separation of PCL-PUC decreased because of the strong interactions between the PCL-PUC chains and the exfoliated MMT layers. This resulted in an increase in the Young's modulus and a decrease in the elongation at break and maximum stress of the MMT/PCL-PUC nanocomposites. Biodegradability of the MMT/PCL-PUC nanocomposites was dramatically increased with increasing content of MMT, likely because of the less phase-separated morphology of MMT/PCL-PUC. (C) 2007 Wiley Periodicals, Inc.