This study describes the preparation and characterization of nanofibers with poly(vinyl alcohol) (PVA) as the wall matrix to encapsulate montmorillonite (MMT) clay and intercalated MMT‐urea nanocomposite using an electrospinning technique. Nanofibers encapsulated with (1–5%, w/w) MMT clay were successfully produced and characterized in relation to morphological, spectroscopic, structural, surface, and thermal properties. The electrospinning conditions for voltage, flow‐rate, and emitter to collector distance were 20 kV, 0.5, and 0.25 mL/h, and 10 cm, respectively. The surface roughness increased from 43.5 (empty fibers) to 56 nm in the PVA/MMT‐3% and bead‐less nanofibers were formed with the maximum diameter distribution and mean diameter value of 45–80 and 62 nm, respectively. The d‐spacing was increased significantly from 1.004 in MMT to 1.684 nm in MMT‐urea, indicating the intercalation of urea occurred successfully. Furthermore, elemental analysis results showed that the intercalated MMT‐urea contained 30.4% nitrogen. © 2017 Wiley Periodicals, Inc. J. Appl. Polym. Sci. 2018, 135, 45957.