Synthesis and characterization of a novel toughener-compatibilizer for polypropylene (PP)-montmorillonite (MMT) nanocomposites were conducted to provide enhanced mechanical and thermal properties. Poly(ethylene oxide) (PEO) blocks were synthetically grafted onto maleic anhydride-grafted polystyrene-block-poly(ethylene/butylene)-block-polystyrene (SEBS-g-MA). Special attention was paid to emphasize the effect of PEO-grafted SEBS (SEBS-g-PEO) against SEBS-g-MA on morphology, static/dynamic mechanical properties and surface hydrophilicity of the resultant blends and nanocomposites. It was found that the silicate layers of neat MMT are well separated by PEO chains chemically bonded to nonpolar SEBS polymer without needing any organophilic modification of the clay as confirmed by X-ray diffraction and transmission electron microscopy analyses. From scanning electron microscopy analyses, elastomeric domains interacting with MMT layers via PEO sites were foundto be distributed in the PP matrix with higher number and smaller sizes than the corresponding blend. As a benefit of PEO grafting, SEBS-g-PEO-containing nanocomposite exhibited not only higher toughness/impact strength but also increased creep recovery, as compared to corresponding SEBS-g-MA-containing nanocomposite and neat PP. The damping parameter of the same nanocomposite was also found to be high in a broad range of temperatures as another advantage of the SEBS-g-PEO toughener-compatibilizer. The water contact angles of the blends and nanocomposites were found to be lower than that of neat hydrophobic PP which is desirable for finishing processes such as dyeing and coating.