2-Hydroxyethyl cellulose graft polylactic acid copolymer (HLAC) was prepared by graft copolymerization of lactic acid (LA) and 2-hydroxyethyl cellulose (2-HEC), initiated by dibutyltin dilaurate (DBTDL) catalyst in aqueous media. Halloysite nanotubes (HNTs)/polyurethane (PU) bionanocomposites were prepared using the HLAC as chain extender in the step-growth polymerization. HNTs were dispersed in HLAC based PU matrix at different weight ratios of 0.30, 0.50, 1.00, and 3.00. Chemical structure and morphology of the graft copolymer and bionanocomposite elastomers were characterized using solid state H NMR, ATR-FTIR, XRD, and SEM-EDX, while thermal degradation behavior was studied by TGA and DSC techniques. Surface morphology of the HNTs reinforced HLAC/PU bio-nanocomposites demonstrated the homogeneous dispersion of HNTs with little wavy rough surface at low contents which turned to be brittle at higher contents due to agglomerated HNTs. It is observed that the lower contents of HNTs were completely exfoliated in the HLAC/PU matrix. Crystalline pattern of the elastomers improved at lower contents of HNTs that enhanced the thermal stability of the bionanocomposites. The mechanical testing suggested that HNTs/HLAC/PU bionanocomposites have higher values of tensile strength and % elongation with only 0.3-0.5 wt% contents of HNTs that suggested the potential applications of elastomers at economic cost.