Montmorillonite (MMT) nanoclay and rosemary essential oil (REO) were incorporated into chitosan film to improve its physical and mechanical properties as well as antimicrobial and antioxidant behavior. The MMT weight percent relative to chitosan was varied from 1 to 5 and was activated by three REO levels (0.5%, 1%, and 1.5% v/v), and their impact on physical, mechanical, and barrier properties of the chitosan films was investigated. Total phenolic and antimicrobial activity were also evaluated. Microstructure of chitosan/MMT-REO nanocomposites was characterized through X-ray diffraction (XRD) and Fourier transform infrared spectroscopy (FTIR). The results showed that incorporating MMT and REO into chitosan improves water gain, water vapor permeability, and solubility of the chitosan film by more than 50%. It was also shown that the combined effect of clay and REO improves significantly the tensile strength and elongation of chitosan (p <0.05). The XRD and FUR results confirmed that the improvements are related to the MMT exfoliation and good interaction between chitosan and MMT in the presence of REO. Antimicrobial properties of the films also improved by REO incorporation in 1.5% v/v. (c) 2012 Elsevier Ltd. All rights reserved.