Segmented polyether-urethane/organically modified montmorillonite (O-MMT) nanocomposites were synthesized with poly(tetramethylene glycol) (PTMG), 4,4-diphenylmethane diisocyanate (MDI), butane diol (BD), and a commercially available clay Cloisite-30B((R)) (O-MMT). The state of dispersion of the clay crystals in the thermoplastic polyurethane elastomer (TPU) matrix was studied by X-ray diffraction and transmission electron microscopy (TEM). The phase-separated morphology of the TPU was revealed by high-resolution TEM (HRTEM) and atomic force microscopy (AFM). O-MMT caused a marginal increase in the glass transition temperature of the soft segments of the TPU and this increase is proportional to the amount of O-MMT in the nanocomposites. Differential scanning calorimetry (DSC) was employed to study the effect of O-MMT on the extent of phase separation in the TPU in these nanocomposites. Thermogravimetric analysis (TGA) results indicate a substantial improvement in the thermal stability of TPU by the addition of O-MMT. Tensile strength and elastic modulus are dramatically decreased by the incorporation of O-MMT into TPU, which is due to the hindrance of the phase-separation process by the exfoliated clay-layered crystals.