In this study microcrystalline cellulose (MCC) was oxidized by 2,2,6,6-tetramethylpiperidine-1-oxyl radical (TEMPO)-mediated oxidation. The treated cellulose slurry was mechanically homogenized to form a transparent dispersion which consisted of individual cellulose nanofibers with uniform widths of 3–4 nm. Bio-nanocomposite films were then prepared from a polyvinyl alcohol (PVA)-chitosan (CS) polymeric blend with different TEMPO-oxidized cellulose nanofiber (TOCN) contents (0, 0.5, 1.0 and 1.5 wt %) via the solution casting method. The characterizations of pure PVA/CS and PVA/CS/TOCN films were performed in terms of field emission scanning electron microscopy (FESEM), tensile tests, thermogravimetric analysis (TGA), Fourier transform infrared spectroscopy (FTIR), and X-ray diffraction (XRD). The results from FESEM analysis justified that low loading levels of TOCNs were dispersed uniformly and homogeneously in the PVA-CS blend matrix. The tensile strength and thermal stability of the films were increased with the increased loading levels of TOCNs to a maximum level. The thermal study indicated a slight improvement of the thermal stability upon the reinforcement of TOCNs. As evidenced by the FTIR and XRD, PVA and CS were considered miscible and compatible owing to hydrogen bonding interaction. These analyses also revealed the good dispersion of TOCNs within the PVA/CS polymer matrix. The improved properties due to the reinforcement of TOCNs can be highly beneficial in numerous applications.