This paper reviews the recent research and development of clay-based polymer nanocomposites. Clay minerals, due to their unique layered structure, rich intercalation chemistry and availability at low cost, are promising nanoparticle reinforcements for polymers to manufacture low-cost, lightweight and high performance nanocomposites. We introduce briefly the structure, properties and surface modification of clay minerals, followed by the processing and characterization techniques of polymer nanocomposites. The enhanced and novel properties of such nanocomposites are then discussed, including mechanical, thermal, barrier, electrical conductivity, biodegradability among others. In addition, their available commercial and potential applications in automotive, packaging, coating and pigment, electrical materials, and in particular biomedical fields are highlighted. Finally, the challenges for the future are discussed in terms of processing, characterization and the mechanisms governing the behaviour of these advanced materials.