The free-radical polymerization of acrylamide in aqueous clay dispersions and the structure of the resulting polymer-clay nanocomposite hydrogels have been investigated by rheometry using oscillatory deformation tests. Laponite was used as clay particles in the hydrogel preparation. The reactions were carried out with and without the presence of the chemical cross-linker N,N'-methylenebis(acrylamide) (BAAm). In the absence of BAAm, increasing clay concentration from 0.2 to 7% results in 3 orders of magnitude increase of the elastic modulus G' of the hydrogels. At a clay concentration of 5% or above, all the reaction systems, with or without BAAm, exhibit similar elastic moduli, indicating that clay mainly determines the rubber elasticity of the hydrogels. The loss factor tan delta was found to be around 0.1, indicating that the nanocomposite hydrogels are much more viscous than the conventional hydrogels. Increasing the amount of clay also increases the viscous, energy dissipating properties of the nanocomposite hydrogels, which are responsible for their improved mechanical properties. Dynamics of the nanocomposite hydrogels was also investigated by dynamic light scattering. The ensemble-averaged scattered intensity of the hydrogels varies nonmonotonically with the clay concentration due to the action of clay both as a cross-linker and as an ionic component during the formation of the nanocomposite hydrogels.