Polyhydroxyalkanoates (PHA) are microbial polyesters offering the advantages of biodegradability and biocompatibility over traditional petroleum based thermoplastics with almost similar properties. However, their highly crystalline nature, excessive brittleness and high price have prevented them from being a commercial success. Functionalization of PHA by maleation and their composites with natural fibers/ clay nano-particles can help overcome these shortcomings. Poly(3-hydroxybutyrate) (PHB), one of the most common PHA is chosen for this study. Maleic anhydride (MA) and octadecenyl succinic anhydride (ODSA) are grafted onto PHB by a solvent free method using twin-screw reactive extrusion in the presence of a free radical initiator. The resulting functionalized PHB is analyzed by titration method as well as spectroscopic, microscopic and thermal analyses and is used as a compatibilizer in the fabrication of PHB based eco-friendly green composites through extrusion followed by injection molding process. Here, the incorporation of hemp fiber in to the composite structure improved the modulus and impact strength of virgin bioplastic (PHB). The heat deflection temperature (HDT) of PHB bioplastic improved from 94 to 145°C on reinforcement with 30 wt% of hemp fiber. Fiber-matrix adhesion was evaluated through environmental scanning electron microscopy (ESEM) studies. Preliminary results of nanocomposites fabricated from PHB, organically modified Montmorillonite (clay) and maleated PHB are also presented. Maleated PHB, a new compatibilizer developed by us, improved the fiber-matrix adhesion and improved polymer matrix intercalation/exfoliation of clay galleries in the composite. Thus, PHA based composites can boast of a very promising future in a wide range of specialty and commodity applications including packaging and automobile industry.