Wood fiber (WF) was esterified with maleic anhydride，then was modified by grafting copolymerization using benzoyl peroxide (BPO) as initiator，styrene (St) and n-butylacrylate (BA) as monomers. The modified wood fiber (MWF) and polycaprolactone (PCL) were compounded to prepare composites using a mixing chamber. The structure and properties of MWF and MWF/PCL composites were analyzed by FT-IR, mechanical testing, WAXD, TG-DSC and SEM. The results show that hydrophobic monomers were grafted on MWFs successfully. The graft degree of hydrophobic monomers reaches the maximum when the mole ratio of St to BA is 1.5∶1，and MWFs show better hydrophobic properties. Compared with WF/PCL (20/80) composite, the tensile strength and the elongation at break of the MWF/PCL (20/80) composite increase 22% and 718% respectively, and the PCL phase in MWF/PCL composites also exhibits increase in the crystalline size, crystallinity and thermo-stability. SEM analysis reveals improved interfacial adhesion between MWF and the polymer matrix.