The barrier and mechanical properties of biodegradable melt-mixed polyesteramide/octadecylamine-treated montmorillonite clay (filler) have been studied. Extruded films containing 5 and 13 wt% filler were prepared by melt-mixing. Samples compression molded after extrusion was also studied. Oxygen and water transmission rates were measured. X-ray diffraction was used to assess the periodic distance of the clay layers and transmission electron microscopy was used to assess the composite morphology. An increase of the periodic distance from 23.7 Angstrom for pure filler to 32-36 Angstrom for the processed composites was observed. This suggested that the collapsed stacks of clay particle of the first order X-ray reflection became intercalated upon extrusion. A decrease in the intensity with increasing rotation speed was observed, which suggested that higher shear rates promoted delamination, especially in composites with higher filler content. Transmission electron microscopy indicated that a sizable portion of the clay stacks were delaminated into smaller aggregates, containing generally one to three clay sheets. Density measurements indicated that shear-induced voids were formed in the nanocomposite, and these were, according to transmission electron microscopy, almost exclusively located between the clay sheets. The presence of voids limited the improvement in barrier properties with increasing filler content. However, the very large improvement in stiffness and strength with filler content indicated that these properties were unaffected by these voids.