In this article, pristine carbon nanotubes (CNTs) and hydroxylated CNTs (CNT-OH) were employed to enhance the thermal stability and flame retardancy of polypropylene (PP)/wood flour composites (WPC) compatibilzed by maleic anhydride-grafted polypropylene (PP-g-MA). Incorporating 10 wt% PP-g-MA only enhanced the mechanical and thermal properties to some extent, but did not improve the flame retardancy of WPC. Thermogravimetric analysis (TGA) showed that the thermal stability of WPC was further increased with the addition of CNTs or CNT-OH and the increase of their loading level. Cone calorimeter measurements suggested that CNTs and CNT-OH could effectively reduce the peak heat release rate (PHRR) of WPC, and the flame retardancy properties reached the optimum value when both of their loading was 1.0 wt%, for instance, a reduction in PHRR by 16.7% and 25% for CNTs and CNT-OH, respectively. In addition, CNT-OH conferred better flame retardancy on WPC relative to pristine CNTs due to the better interfacial adhesion with wood flour and PP matrix, which was evidenced by scanning electron microscopy (SEM) observations.