The presence of microcapacitors near percolatrion threshold determines dielectric permittivity of a material. Motivated by this concept, we focused our work by preferentially allocating functionalized reduced graphene oxide (FRGO) in hard segment (disperse phase) of Thermoplastic polyurethane (TPU) by solution blending method and characterized. Morphological studies of TPU/FRGO nanocomposites established homogeneous dispersion of FRGO throughout the TPU matrix. It is noted that TPU/FRGO (1 phr) nanocomposites exhibit maximum increase in tensile strength (33%) and elongation at break (10%). Thermogravimetric analysis (TGA) showed maximum enhancement in onset of decomposition temperature (~6 °C) in 2 phr FRGO loaded TPU. Differential scanning calorimetry (DSC) analysis showed maximum reduction (~2 °C) in glass transition temperature (Tg) of soft segment of TPU followed by maximum improvements in melting temperature (~4 °C) as well as crystallization temperature (~22 °C) of hard segment compared to neat TPU. Further, a significantly high value of dielectric permittivity (401) is achieved in 1.5 phr loaded FRGO at 100 Hz due to the formation of significantly higher number of microcapacitors near the percolation threshold. It is anticipated that such thermally stable and mechanically strong high dielectric TPU/FRGO nanocomposites can find applications in the field of electronic devices.