Aniline (ANI) was polymerized under inert atmosphere in the presence and absence of natural clay initiated by peroxydisulphate (PDS) in an aqueous acidic medium. While increasing the amount of clay the rate of polymerization (Rp) was decreased and showed first order dependence with respect to amount of clay. The % yield was also decreased while increasing the amount of clay due to the confinement of monomer radical cation by the clay. The FTIR spectrum confirmed the presence of benzenoid and quinoid units in the polyaniline (PANI) structure. DSC inferred the absence of Tm due to cross-linking reaction of PANI because of de-doping process. AFM showed the distorted spherical morphology of uniformly dispersed clay platelets in the PANI. The % weight residue remain above 700°C is increased with the increase of amount of clay, which was confirmed by TGA method. Due to confinement effect the intrinsic viscosity value of PANI—nanocomposites were decreased with the increase of amount of clay in the system. PANI-nanocomposites showed improved d.c. conductivity value than the pristine PANI. Suitable mechanism was proposed to explain the experimental results obtained.