Clay-PEO nanocomposites can have large electrical conductivities that make them potential electrolyte materials for rechargeable lithium batteries, but the origin of these large conductivities, especially for Li-containing materials, is poorly understood. This paper presents X-ray diffraction (XRD), TGA-DTA, and (7)Li and (23)Na NMR data for PEO nanocomposites made with natural (SWy-1) and synthetic (MNTS) montmorillonite clays that provide new insight into interlayer structure. An increase in basal d(001)-spacings demonstrates successful intercalation of PEO in all samples, and X-ray line narrowing shows that this intercalation improves the layer stacking order. The basal spacings of 17.9-19.4 A are consistent with a helical or bilayer structure of PEO in the interlayer. TGA-DTA provides quantitative results for the hydration state of the nanocomposites, demonstrates PEO intercalation, and shows that the composites prepared from the synthetic montmorillonite are less stable than those made with SWy-1. (7)Li NMR shows that the nearest neighbor hydration state of Li(+) is unaffected by PEO intercalation and suggests weak interaction of Li(+) with PEO. (23)Na NMR shows that PEO intercalation results in the conversion of the multiple Na(+) hydration states observed for the pristine clay into inner sphere sites most likely formed through coordination with the basal oxygens of the clay. These differences between lithium and sodium suggested that tighter binding of the Na to the clay may be the origin of the conductivity of Li-montmorillonite-PEO nanocomposites being as much as 2 orders of magnitude larger than those of Na-montmorillonite-PEO nanocomposites. The results confirm the idea that polymer oxygen atoms do not participate in sequestering the exchangeable cations and agree with the jump process for cation migration advanced by Kuppa and Manias (Kuppa, V.; Manias, E. Chem. Mater. 2002, 14, 2171).