Nanocomposites of polypropylene with montmorillonite modified with dimethyldioctadecylammonium ions were prepared and the effect of compatibilizers on the mechanical and permeation properties was investigated. Compatibilizers were selected on the basis of their chemical nature, molecular weight, amount of grafting and location of the polar groups. Addition of small amount of compatibilizers led to improvements in the basal spacings of clay platelets indicating enhanced exfoliation. The modulus of the composites increased as compared with the values without compatibilizer. The oxygen permeation through the composite films either increased or remained unaffected due to possible interfacial free volume enhancement owing to the incompatibility of the surface modification and the compatibilizer. Increasing the amount of compatibilizer also increased correspondingly the extent of exfoliation. The modulus reached a plateau value after which the increasing compatibilizer led to its decrease. The gas permeation through the composite films remained unchanged with increase in the amount of compatibilizer owing to a possible balance between the decrease in permeation due to path tortuity and exfoliation and increase in permeation due to interfacial incompatibility. The improving exfoliation improved the yield and break stress indicating that the absence of tactoids can hinder the premature failure owing to better stress transfer. (C) 2007 Wiley Periodicals, Inc.