The present work was aimed to develop naturally woven coconut sheath/polyester biocomposites. In these composites, montmorillonite nanoclay (5 wt%) was used as a second filler. The heat releasing rate and other flammability properties were studied using cone calorimeter. The coconut sheath reinforcement in polyester matrix significantly decreased the heat releasing rate when compared to that of the pristine polyester. However, the time to ignite the composite material was shorter than that of the pure polyester. The morphological changes on the fiber surface by the chemical modification significantly influenced the heat-releasing rate and other flammability characteristics due to better interfacial bonding. The hybridization effect of 5 wt% of nanoclay could greatly decrease the heat release rate and the mass loss rate of the composites by char formation mechanism. The characterization techniques such as the scanning electron microscopy and the transmission electron microscopy were used to study the morphological state of the fiber surface and dispersion of clay in the polyester nanocomposites. The thermogravimetric analysis was also carried out to study the effect of the nanoclay on the thermal stability of the coconut sheath/polyester composites at higher temperatures.