The effect of montmorillonite (MMT) used to improve the fire retardancy of poly(vinyl alcohol) (PVA)/ammonium polyphosphate (APP) was studied. The limiting oxygen index (LOI), vertical burning test (UL-94), cone calorimeter, thermogravimetric analysis (TGA), Fourier transform infrared (FTIR) spectroscopy, and scanning electron microscopy (SEM) were used to evaluate the effect of the presence of MMT. Compared to that for the PVA/APP composite, the LOI of PVA/APP/MMT composite was increased from 27.9 to 30.8 and UL-94 could reach V-0 when the total loading of flame retardant was 15 wt %. The results from cone calorimeter parameters such as the heat release rate (HRR), the total heat release (THR), and mass loss (ML) showed that the addition of MMT improves the flame retardancy of PVA/APP systems significantly. The TGA data showed that MMT improved the thermal stability of the PVA/APP systems at high temperature. Importantly, mechanical properties such as tensile strength and elongation at break for the PVA/APP composite could be enhanced by the presence of MMT.