The application of drilling fluids and additives plays an important role in drilling operations. Additionally, one of the most crucial ways to increase drilling efficiency since environmental rules have been passed is by finding an inexpensive and ecologically acceptable drilling fluid additive. Pomegranate peel extract (PP) and PP modified with aluminum chloride (AlCl3) (PPA) were produced in this study. Their effects on inhibiting clay swelling were evaluated using linear swelling tests, mud ball tests, anti-swelling tests and drilling fluid performance evaluation. The performance of the modified PP in inhibiting clay swelling was compared with that of potassium chloride (KCl). The swelling rate of bentonite was effectively reduced by 1.20% PP, which represented a substantial improvement above that by 4% potassium chloride. The results of this study indicated that PPA had excellent performance in inhibiting clay swelling compared with known inhibitors. PP was modified with 0.06% aluminum chloride (named as PPA-1). The yield point/plastic viscosity ratio remained basically stable after the addition of PPA-1 to a drilling fluid in a 100°C hot-rolling experiment. Thus, the drilling fluid showed good rheological properties. Furthermore, the drilling fluid prepared with PPA-1 had a high shale recovery rate. Finally, the correlation between the molecular structures of PP and PPA-1 and their inhibition mechanism was assessed using X-ray diffraction and infrared spectroscopy. This study provides a pathway for converting low-cost agricultural by-products into high-value-added industrial materials.