In the present investigation, a novel chemical treatment was introduced for the extraction of nanocellulose fibers from sugarcane bagasse and applied as reinforcement material to enhance the physical properties and thermal stability of epoxy nanocomposites. Epoxy nanocomposites with different weight fractions were fabricated using a wet layup process followed by furnace heating to remove the residual moisture content. The influence of surface modified sugarcane nanocellulose fiber loading on morphological (transmission electron microscope) properties of epoxy nanocomposites was investigated. The porosity and water absorption increase with the increment in fiber weight fraction for both treated and untreated nanocellulose fiber-epoxy composites. Among the various treatment processes, the alkali-treated fibers reinforced epoxy composites showed better thermal stability and water absorption resistance under 10 wt.% of nanocellulose fiber reinforcement.