Researchers at the Indian Institute of Chemical Technology,Hyderabad has developed the polyurethane–clay nanocomposite foams by replacing part of the synthetic polyol with castor oil derivatives. Hydroxylated castor oil was converted into diethanol amide by transamidation and the resulting polyol was formulated into water-blown foams. Modified montmorillonite clay was used as nanofiller in different amounts viz. 0.5%, 1.0%, 2.0%, and 5.0% by total weight of the foam formulation. Rheological measurements on the polyol–clay mixtures indicated that up to 1% clay loading there is no significant change in the viscosity with shear rate and beyond 2%, shear thinning occurred. X-ray diffraction studies further substantiated these results. The effect of the modified clay on the density, mechanical properties such as compression strength, compression modulus, and microstructure of the foams were investigated. The filler thus added had a reinforcing effect on the foam as observed in the density and compression strength measurements. Differential scanning calorimetric studies on Tg and dynamic mechanical analyses on the modulus clearly indicated that 1% clay loading and above led to exfoliation and plasticizing effect. Exfoliated nanocomposites in compositions containing 1% clay and more yielded a much higher nucleation rate than intercalated ones leading to reduced cell size as observed by optical and scanning electron microscopy. Thus, castor oil, which is readily available, relatively inexpensive, and environmentally benign nonedible oil, has been successfully used to prepare filled semirigid foams which can find application in insulation and packing.