This study describes a novel route to synthesize vinyl pyridine-styrene-butadiene terpolymer rubber (VP rubber) montmorillonite clay nanocomposites by latex blending technique. The pyridine moiety of the VP rubber was modified with methyl iodide to form the pyridinium ion during latex blending. Cation exchange reaction of the pyridinium ion of the VP rubber latex with sodium montmorillonite occurred during latex stage mixing which helped to form VP rubber-montmorillonite clay nanocomposites. Coagulation of the latex-clay slurry produced nanocomposites master batch. The master batch was compounded with acrylonitrile butadiene rubber (NBR). Fourier Transform Infrared Spectroscopy (FTIR) confirmed the modification of the pyridine moiety of VP rubber. Wide angle X-ray diffraction (WAXD), scanning electron microscopy-energy dispersive X-ray spectrophotometry (SEM-EDS) and transmission electron microscopy (TEM) provided the evidences of formation of nanocomposite. Remarkable improvements in the mechanical properties were found by addition of small amount of modified clay. POLYM. ENG. SCI., 51: 1675-1681, 2011. (C) 2011 Society of Plastics Engineers