Compared with pristine polymers, bionanocomposites derived from biopolymers and inorganic nanoparticles have significantly improved electrical/magnetic properties, mechanical properties, thermal stability, gas barrier properties, and fire retardance. In this study, poly(lactic acid) (PLA) nanocomposites were prepared by in situ melt polycondensation of L-lactic acid with different loading ratios of surface-hydroxylated magnesium oxide (MgO) nanocrystals. Molecular weight, structure, morphology, and thermal properties of the nanocomposites were characterized. PLA-grafted MgO (PLA-g-MgO) was isolated from free PLA for the nanocomposite with 3% MgO via repeated dispersion/centrifugation processes and characterized. The weight-average molecular weight of the PLA-0.01%MgO nanocomposite was 55500, which was 30% higher than that of pure PLA. Discoloration of PLA was obviously depressed in the presence of MgO nanocrystals. Formation of hydrogen bonding between PLA chains and surface -OH groups from MgO was detected by Fourier transform infrared spectroscopy. Morphological images showed uniform dispersion of MgO nanocrystals in the PLA matrix and demonstrated a strong interfacial interaction between the PLA matrix and MgO nanocrystals. PLA-MgO nanocomposites exhibited improved thermal stability compared with pure PLA. Calculations based on thermogravimetric analysis revealed that more than 42.5% PLA was successfully grafted into PLA-g-MgO.