Poly (lactic acid) (PLA) was melt blended in a twin screw extruder using an ethylene-methyl acrylate-glycidyl methacrylate rubber as a toughener. PLA/rubber blends were immiscible as observed by scanning electron microscopy. Impact strength and ductility of PLA were improved by the addition of the rubber at the expense of strength and stiffness. An organo-montmorillonite (OMMT) was used at 2 wt % to counteract the negative effect of the rubber on modulus, and balanced properties were observed at 10 wt % rubber content. X-ray diffraction and transmission electron microscopy revealed the formation of intercalated/exfoliated structure in the ternary nanocomposites. Thermal behavior analysis indicated that the degree of crystallinity is slightly affected by the clay and the rubber. Both the clay and the rubber decreased the crystallization temperature of PLA and acted as nucleating agents for PLA. The viscosity of the mixtures as measured by melt flow index was highly influenced by the rubber and the OMMT. (c) 2012 Wiley Periodicals, Inc. J. Appl. Polym. Sci., 2013