Stringent environmental regulation has endowed dispersible coatings with excellent property profiles in industrial applications. In this aspect, aqueous polyurethane dispersions (PUDs) are of special interest. The present study reports on the synthesis of hydroxylated polyester (HP) based polyurethane polyols containing internal carboxyl group with different diisocyanates. These polyurethane polyols were partly acetoacetylated with ethyl acetoacetate to incorporate beta-ketoester in the polyurethane polyol backbone. The synthesized polyols were characterized by Fourier transform infrared spectroscopy, nuclear magnetic resonance, and differential scanning calorimetry. Polyurethane polyols and their acetoacetylated cousins were used to develop PUDs. Particle size of the reactive PUDs was evaluated by a particle size analyzer. PUDs were crosslinked with hexamethoxy methyl melamine and their film properties were studied by dynamic mechanical and thermal analyzers and thermogravimetric analyses. The effects of different diisocyanate and acetoacetylation on the stability of reactive dispersion and properties of the crosslinked films were evaluated. (c) 2005 Wiley Periodicals, Inc.