Nowadays, intrinsically conducting polymers, and nanostructured carbon materials based sensors have been fabricated extensively because of their outstanding sensitivity, reversibility, stability and selectivity at low working temperature. Herein, we are reporting nanocomposite of polythiophene (PTh) with graphene nanosheets (G) as a potential candidate for ethanol vapour sensor application with high sensitivity and complete reversibility at room temperature. The cost-effective and simple in-situ chemical oxidative polymerisation technique was employed for the synthesis of PTh and PTh/G. The structural, morphological and thermal studies of as-prepared materials were carried out by Fourier transform infrared spectroscopy (FT-IR), scanning electron microscopy (SEM), transmittance electron microscopy (TEM), Raman spectroscopy, x-ray diffraction (XRD) and thermogravimetric analysis (TGA) techniques. We evaluated the comparative DC electrical conductivity retention under the isothermal and cyclic ageing conditions for all the as-prepared samples, and thus PTh/G-3 (PTh/G nanocomposite containing 15% graphene nanosheets) was found to be most stable semiconductor among all the as-prepared materials with initial DC electrical conductivity of 0.6874 Scm−1. The results revealed that thiophene monomer successfully polymerised on the surface of graphene nanosheets as a result of an electronic as well as π-π interaction between PTh and graphene nanosheets. Hopping of charge carriers from PTh to graphene nanosheets and vice versa where the extended π-conjugated system provides rapid mobility that brings about exceptionally enhanced electrical conductivity in PTh/G nanocomposites as compared to PTh. The change in DC electrical conductivity of PTh/G-3 nanocomposite was studied on exposure to ethanol vapours followed by ambient air at room temperature. It was observed that the uniform lamination of PTh on graphene nanosheets shows the excellent sensitivity than PTh, leading to a considerably low detection limit of 400 ppm and complete reversibility within 360 s at room temperature. The very short response time and complete reversibility may be accredited to the very high surface area of PTh/G-3, high electrical conductivity, availability of proper sensing pathways and active sites. More notably, PTh/G-3 was observed to be excellent in selectivity towards ethanol than various volatile hydrocarbons tested. The sensing mechanism was presented citing the involvement of polarons of polythiophene and lone pairs of electrons of ethanol during adsorption and desorption on the surface of PTh/G-3 which is responsible for the variation in DC electrical conductivity.