Nanocomposites from a polyester-type water-borne polyurethane (PU) containing different amounts (17.4-174 ppm) of gold (Au) nanoparticles (approximately 5 nm) were prepared. A previous study has shown that the Au nanoparticles could induce surface morphological transformations in the PU (e.g. the mesophase transition from hard lamellae to soft micelles), which modify the physicochemical properties of the PU as well as the fibroblast response to the PU. The current study focused on the biostability and biocompatibility of the nanocomposites. The nanocomposites were characterized by transmission electron microscopy and X-ray photoelectron spectroscopy, and their oxidative stability and free radical scavenging ability were tested. The inflammatory response was evaluated by monocyte activation in vitro and rat subcutaneous implantation in vivo. It was found that the nanocomposites containing 43.5-65 ppm of Au had the least monocyte activation and tissue reactions. PU and the nanocomposites were rather resistant to oxidative degradation in vitro and biodegradation in vivo. The nanocomposites exhibited greater free radical scavenging abilities than the original PU. Based on the above results, the significantly enhanced biocompatibility of the PU-Au nanocomposites with 43.5-65 ppm of gold over the original PU appeared to be a result of the extensively modified surface morphology and greater free radical scavenging ability, instead of due to the difference in biostability.