The urea-formaldehyde resin/reactive montmorillonite composites were prepared by in situ polymerization. The reactive montmorillonite was prepared firstly by being ion exchanged with organic molecules and secondly by being grafted with silane coupling agent, which could be demonstrated by X-ray diffraction (XRD) and thermogravimetric analysis (TGA). Scanning electron microscopy (SEM) revealed that the morphology of the urea-formaldehyde resin/reactive montmorillonite composites were ellipsoid or columnar particles. Energy dispersive spectrometry (EDS) confirmed that the reactive montmorillonite was encapsulated by urea-formaldehyde resin. Differential scanning calorimetry (DSC) indicated that curing process of the urea-formaldehyde resin/reactive montmorillonite composites consumed more energy than pure urea-formaldehyde resin. Thermogravimetric analysis (TGA) showed that the thermal stability of the urea-formaldehyde resin/reactive montmorillonite composites improved compared to pure urea-formaldehyde resin. Furthermore, the reactive montmorillonites reduced the formaldehyde emission of the composites and increased the water resistance. Finally, the mechanism to prepare the urea-formaldehyde resin/reactive montmorillonite composites was proposed.