The effects of chain extension and branching on the properties of nanocomposites produced from recycled poly (ethylene-terephthalate) and organically modified clay were investigated. As the potential chain extension/branching agent, maleic anhydride (MA) and pyromellitic dianhydride (PMDA) were used. The nanocomposites were prepared by twin-screw extrusion, followed by injection molding. Recycled poly (ethylene-terephthalate) was mixed with 2, 3 or 4 weight % of organically modified montmorillonite. During the second extrusion step, 0.5, 0.75 or 1 weight % of MA or PMDA was added to the products of the first extrusion. The effects of the sequence of addition of the ingredients on the final properties of the nanocomposites were also investigated. X-Ray Diffraction analysis showed that, the interlayer spacing of Cloisite 25A expanded from 19.21 Å to about 28–34 Å after processing with polymer indicating an intercalated structure. PMDA content, MA content and screw speed did not have a significant effect on the expanded interlayer distance. In the first extrusion step, nanocomposites containing 3% organoclay content gave significant increase in Young's modulus and decrease in elongation at break values indicating good interfacial adhesion. After the addition of anhydrides, it was observed that, in general PMDA improved the mechanical properties of the nanocomposite owing to the branching and chain extension effects that increase the molecular weight. However, MA did not significantly improve the properties, since in this case the chain scission seemed to be more dominant.