This work has demonstrated that the addition of optimum content of D-2000 modified montmorillonite enhances the ionic conductivity of the poly(ethyl oxide) (PEO) based electrolyte by nearly sixteen times more than the plain system. Specific interactions among silicate layer, ethyl oxide and lithium cation have been investigated using alternating current impedance (A.C, impedance), differential scanning calorimetry (DSC) and Fourier- transform infrared (FT-IR). The DSC characterization confirms that the initial addition of clay is able to enhance the PEO crystallinity due to the interaction between the negative charge from the clay and the lithium cation. Three types of complexes are present; complex I is present in the PEO phase, complex II resides at the interphase, and complex III is located within the clay domain. Complex 11 plays the key role in stabilizing these two microstructure phases. FT-IR spectra confirm that the existence of clay is able to dissolve the lithium salts, easier than the plain electrolyte system and thus increases the fraction of free ions.