This study is aiming of developing eco-friendly wood adhesive based on oxidized starch (OS) modified by nanoclay to enhance their adhesion and no formaldehyde emission. Two types of nanoclay such as pristine-bentonite (P-BNT) and transition metal ion modified-pristine-bentonite (TMI-P-BNT) at three levels (i.e., 1, 3, and 5%) were used for the modification of OS adhesive. Basic properties, chemical properties and thermal properties of the modified OS adhesives were examined with various analysis techniques to understand the influence of nanoclay modification on OS polymer. As the nanoclay level increased, the modified OS adhesives had greater solids content and viscosity but the gelation time decreased, indicating a faster curing of the modified OS adhesive. X-Ray diffraction of the modified OS adhesives resulted in a decrease in the 2θ value and enlarged d -spacing value, showing that the nanoclay had been intercalated within OS polymer molecules. Two peaks at 526 cm −1 and 461 cm −1 detected by FTIR were assigned to Si–O–Al and Si–O–Si vibrations, respectively, and confirmed the presence of nanoclay in the OS polymer. Thermogravimetric analysis showed that the added nanoclay improved thermal stability of OS adhesives. The modified OS adhesives with 5% TMI-P-BNT enhanced their adhesion strength from 0.9 to 1.25 MPa, and resulted in free formaldehyde emission (near to 0.01 mg/L) from plywood panel. These results indicated that the modification of OS adhesives with 5% TMI-P-BNT could be used as bio-based and environmentally friendly plywood adhesive with zero formaldehyde emission.