The abilities to enhance the degree of orientational freedom of dipole in polymer dielectrics and strengthen the homogeneous dispersion of conductive fillers in matrix are of crucial importance for fabricating composite materials with high dielectric constant, low dielectric loss, low density, and good processability. Compared with conventional main-chain polybenzoxazoles, whose processability and dielectric performance are strictly limited by the conjugated benzoxazole groups on the backbone, improved solubility in dimethylformamide and dielectric constant (4.92) were observed for poly(2-isopropenylbenzoxazole) (P(2-IBO)), due to the high mobility of the dipole (benzoxazole ring) on the side chains. In addition, improved dispersion of conductive graphene nanosheets was achieved by a surface-initiated atom transfer radical polymerization (ATRP) of the N-(2-hydroxyphenyl)methacrylamide (o-HPMAA), the precursor of 2-isopropenylbenzoxazole from reduced graphene oxide (RGO). The nanocomposites of functionalized graphene and P(2-IBO) possess a dielectric constant of 8.35 (approximately 70% higher than that of pure P(2-IBO) at 1 kHz) when the weight fraction of functionalized graphene reaches 0.015, the lowest so far among the reports on dielectric property of the graphene/polybenzoxazole system.