Waterborne polyurethane dispersions (WPUDs) containing a renewable palm oil‐based 9,10‐dihydroxystearic acid (DHSA) as an isocyanate‐reactive compound bearing ionizable carboxylic group to incorporate hydrophilic groups into the polymer chain have been successfully prepared. The WPUDs were prepared by using polyether and polyester polyols of 2000 molecular weight, DHSA and its traditional petroleum‐based counterpart 2,2‐bis(hydroxymethyl)‐propionic acid (DMPA), and an aliphatic diisocyanate (isophorone diisocyanate, IPDI). A comparison was made between the properties of WPUDs obtained using blends of DHSA and DMPA at different molar ratios and a reference WPUD based on DMPA. The particle size of polyester type WPUDs containing DHSA was reduced at a 0.5 to 0.5 molar ratio of DMPA to DHSA. A lower initial temperature was used in the preparation of NCO‐prepolymers with DHSA as compared to DMPA and this eased the preparation of WPUDs. The effect of molar ratio of DMPA to DHSA on the properties of films and coatings prepared with WPUDs was evaluated. The best properties were obtained with WPUDs prepared with a 0.5 to 0.5 molar ratio of DMPA to DHSA. The incorporation of renewable palm oil‐based DHSA into WPUDs improved water resistance (lower water uptake) and exhibited good combination of properties including hardness, adhesion strength, tensile strength, and elasticity. © 2016 Wiley Periodicals, Inc. J. Appl. Polym. Sci. 2016, 133, 43614.