Purification of montmorillonite rich bentonite followed by surface modification using organic salts was performed. The bentonite was purified by sedimentation and then surface modified by ion exchange using alkyl- and aryl-based phosphonium salts. The thermal stability, morphology, melt flow, and mechanical properties of the poly(ethylene terephthalate) (PET) nanocomposites prepared with these organoclays were studied with and without using a reactive elastomeric compatibilizer. TEM results showed that the alkyl based organoclay exhibited better dispersion and thus, higher tensile strength and elongation at break in the PET/organoclay/elastomer ternary nanocomposites than the aryl-based organoclay did. The notched Charpy impact strength of PET increased from 2.9 to 4.7 kJ m2 and 3.4 kJ m2 for alkyl and aryl phosphonium organoclay-based ternary nanocomposites, respectively. Upon compounding PET with alkyl and aryl phosphonium organoclays, the onset decomposition temperature of PET increased from 413 degrees C to 420 degrees C and 424 degrees C, respectively. (c) 2012 Wiley Periodicals, Inc. J. Appl. Polym. Sci., 2013