Thermoplastic polyurethane (TPU)/clay nanocomposite films were produced by incorporation of organo‐modified montmorillonite clay (Cloisite 30B) in TPU matrix by two different melt‐mixing routes (direct and master‐batch‐based mixing), followed by compression molding. In master‐batch mixing where the master‐batch was prepared by mixing of clay and TPU in a solvent, better dispersion of clay‐layers was observed in comparison to the nanocomposites produced by direct mixing. As a consequence, superior mechanical and gas barrier properties were obtained by master‐batch mixing route. The master‐batch processing resulted in 284 and 236% increase in tearing strength and tearing energy, respectively, with 5 wt % clay‐loading. Interestingly, in case of master‐batch mixing, the tensile strength, stiffness as well as breaking extension increased simultaneously up to 3 wt % clay‐loading. The helium gas permeability reduced by about 39 and 31% for the TPU/clay nanocomposites produced by mater‐batch and direct mixing routes, respectively, at 3 wt % loading of clay. Finally, the gas permeability results have been compared using three different gas permeability models and a good correlation was observed at lower volume fraction of clay. © 2018 Wiley Periodicals, Inc. J. Appl. Polym. Sci. 2018, 135, 46422.