Zinc oxide (ZnO) nanoparticles were successfully prepared by a one-step precipitation reaction in an aqueous solution of zinc acetate and sodium hydroxide with stearic acid (SA) as the modifying agent. Hydrophilic composites of poly(ethylene terephthalate) (PET), poly(ethylene glycol), and ZnO nanoparticles were prepared further by in situ polymerization. The surface modification of ZnO and the microstructure and properties of prepared nanoparticles were investigated by relative contact angle measurements (CA), Fourier transform infrared spectroscopy, X-ray diffraction (XRD), scanning electron microscopy, and thermogravimetric analysis (TGA). Measurements of CA and XRD indicated that the surface-treated ZnO was hydrophobic and had a significant improvement in crystallinity with SA. Compared with the nanocomposites filled with the pure ZnO, the modified ZnO exhibits a better dispersion in PET-PEG matrix. TGA results showed that the presence of modified ZnO nanoparticles can improve the thermal stability of PET-PEG matrix. CA and low field nuclear magnetic resonance methods were used to investigate the hydrophilic behavior of nanocomposites. The results revealed that modified nanoparticles had a positive effect on the bound water absorption. A simple model for the interactions between ZnO, SA, and PET-PEG matrix was proposed. POLYM. COMPOS., 37:1830-1838