Central composite designed experiments are conducted to study the independent effects of maleated polyethylene, dicumyl peroxide and nanoclay in the forms of natural (Cloisite® Na⁺) and masterbatch (Nanoblend™ concentrates MB2001) on the mechanical properties of fiber reinforced PE composites with different fiber levels. The optimum values are predicted on the results of designed experiments and there are linear regressions between fiber content and their mechanical properties. The deposition and formation of nanoclay particles in PE composites are ascertained by scanning electron microscope and transmission electron microscope observations. Both natural nanoclay and MB2001 can be delaminated and even exfoliated in polarized PE matrix. As wood fiber is introduced, natural nanoclay particles (nanoclay-natural) are deposited on fiber surface even loaded in fiber lumens, but the nanoclay particles of MB2001 (nanoclay-concentrate) are mostly dispersed in the matrix. In addition, the different reinforcements between nanoclay-natural and nanoclay-concentrates are also investigated to find out the influence of particle formation on the quality of composite materials.