Biodegradable starch-polyester polymer composites are useful in many applications ranging from numerous packaging end-uses to tissue engineering. However the amount of starch that can form composites with polyesters without significant property deterioration is typically less than 25% because of thermodynamic immiscibility between the two polymers. We have developed a reactive extrusion process in which high amounts of starch (approx. 40 wt%) can be blended with a biodegradable polyester (polycaprolactone, PCL) resulting in tough nanocomposite blends with elongational properties approaching that of 100% PCL. We hypothesize that starch was oxidized and then crosslinked with PCL in the presence of an oxidizing/ crosslinking agent and modified montmorillonite (MMT) organoclay, thus compatibilizing the two polymers. Starch, PCL, plasticizer, MMT organoclay, oxidizing/ crosslinking agent and catalysts were extruded in a co-rotating twinscrew extruder and injection molded at 120 degrees C. Elongational properties of reactively extruded starch-PCL nanocomposite blends approached that of 100% PCL at 3 and 6 wt% organoclay. Strength and modulus remained the same as starch-PCL composites prepared from simple physical mixing without any crosslinking. X-ray diffraction results showed mainly intercalated flocculated behavior of clay at 1,3,6, and 9wt% organoclay. Scanning electron microscopy (SEM) showed that there was improved starch-PCL interfacial adhesion in reactively extruded blends with crosslinking than in starch-PCL composites without crosslinking. Dynamic mechanical analysis showed changes in primary a-transition temperatures for both the starch and PCL fractions, reflecting crosslinking changes in the nanocomposite blends at different organoclay contents. Also starch-polytetramethylene adipate-co-terephthalate (PAT) blends prepared by the above reactive extrusion process showed the same trend of elongational properties approaching that of 100% PAT. The reactive extrusion concept can be extended to other starch-PCL like polymer blends with polymers like polyvinyl alcohol on one side and polybutylene succinate, polyhydroxy butyrate-valerate and polylactic acid on the other to create cheap, novel and compatible biodegradable polymer blends with increased toughness. (c) 2005 Wiley Periodicals, Inc.