The study gives an investigation on the properties of β‐cyclodextrin (β‐CD) waterborne polyurethane (WPU) composites with cross‐linked network structure and hydrogen bonding system. The polyurethane films modified with β‐CD/PEG exhibit superior thermal stability and biodegradability, it is capable to be applied to bio‐degradable plastic coatings. To improve the distribution of β‐CD in WPU, the β‐CD was modified by three different molecular weights of polyethylene glycol hydrophile (PEG). Since the chain segments and hydrophilic hydroxyl groups of PEG interact with the hydrophobic cavities and edges of β‐CD to form new complexes, thus enhancing the flexibility and structural integrity of WPU chains and conferring better biological properties. The analysis focuses on the changes of thermal stability and biodegradability after modification. The results indicated that the temperature of maximum thermal weight loss rate (Tmax) of β‐CD/PEG/WPU composites reached 394.1°C and the soft segment glass transition temperature (Tg) was −42.4°C after the introduction of β‐CD/PEG. Both are significantly improved compared to WPU, with degradation rates of 31.2% in lipase PBS solution and 14.8% in soil, and can therefore be better applied to current medical devices and biodegradable coatings, as well as other bio‐environmental areas.