To achieve good compatibility between clay layers and siloxane polymer, polymethylsilsesquioxane (PMSQ), montmorillonite was modified by a novel siloxane surfactant with (M) over bar (w) = 1900 and then environmentally friendly solution-compounded with PMSQ to prepare glass fiber laminates. Transmission electronic microscope shows the orderly, exfoliated structure of the modified clay in PMSQ matrix; scanning electronic microscope demonstrates the fine dispersion of the clay layers in the matrix because of the good compatibility between the grafted surfactant and the matrix. Both the modified clay and its nanocomposite indicate much improved thermal stability. By incorporation of merely 0.3 wt % of the clay, the flexural modulus and strengths of fiber/PMSQ laminate are increased by 21 and 62%, respectively. This study illuminates the importance of the compatibility of the grafted siloxane surfactant with the matrix polymer in achieving both exfoliation and dispersion of clay as well as ideal mechanical properties for silicone-based polymers. (c) 2006 Wiley Periodicals, Inc.