Composite material based on polyethylene glycol (PEG) and polypyrrole (PPy) polyrotaxanes both encapsulated into α‐cyclodextrins (α‐CDs) macrocycle molecules was synthesized by cross‐linking reaction. The effect of PPy‐αCD polyrotaxane incorporation into the PEG‐αCD polyrotaxane matrix, on the structural, morphological, thermal, and dielectric properties was evaluated and compared to the reference material. Scanning electron microscopy spectroscopy indicates different surface morphologies of this material in comparison to the reference one. In addition, the contact angle measurements and surface free energy attest a hydrophilic surface, while the reference material exhibits a hydrophobic surface. More than that, the presence of the PPy‐αCD cross‐linked into the matrix has a beneficial effect on the thermal properties. The composite material shows an enhanced dielectric constant value of 31,365 at 10 Hz frequency compared to the 38.2 of the reference material, and higher dielectric loss (62,398 vs. 80 at 10 Hz, respectively). The conductivity measurements at 10 Hz frequency indicated for the reference material the value 4.5 × 10−11, while for the material with PPy‐αCD polyrotaxane, the conductivity is three orders of magnitude higher (3.5 × 10−8) confirming the improvements of the electrical properties.