In this study, an attempt has been made to utilize banana fiber (a natural fiber from agricultural waste) as reinforcement for low-density polyethylene (LDPE) to develop environmental friendly composite materials. LDPE/banana fiber composites were fabricated at different fiber loadings (10, 15, 20, 25, and 30 wt %) using compression molding technique. The composite with the composition of 25 wt % banana fiber was observed to be optimum on the basis of biodegradability and mechanical properties. Further, the effect of banana fiber surface treatment (alkali and acrylic acid) on the mechanical properties, morphology and water absorption behavior of the LDPE/banana fiber composites in the absence and presence of compatibilizer (maleic anhydride grafted LDPE, MA-g-LDPE) was comparatively studied. The alkali and acrylic acid treatment of the banana fibers led to enhanced mechanical properties and water resistance property of the composites, and these properties got further improved by the addition of the compatibilizer. The addition of compatibilizer to the acrylic acid treated banana fiber composites showed the most effective improvement in the flexural and impact strength and also, exhibited a reduction in the water absorption capacity. However, the tensile strength of the compatibilized composites with treated fibers resulted in slightly lower values than those with untreated fibers, because of the degradation of fibers by chemical attack as was evidenced by scanning electron microscopy (SEM) micrographs. SEM studies carried out on the tensile fractured surface of the specimens showed improved fiber-matrix interaction on the addition of compatibilizer.