Wood and other bio-fibers have the advantages of having relatively high stiffness, low density, moderate cost over other glass and inorganic fibers. More importantly, they are renewable and nearly carbon neutral. Bio-fiber composites can be used to replace conventional glass fiber reinforced composites in some building and automotives applications. However, there are a number of technical challenges related to this type of composites limiting their usage in more demanding higher end structural applications. Key issues include interface incompatibility, high moisture absorption, poor dimensional stability, and other processing related problems. Over the years, we have done a number of studies to understand the relationship between composite structure and performance and to enhance the interfacial adhesion. Currently we are working on using nano-clay to improve dimensional stability and thermal stability of the bio-fiber composites and investigating the effect of composite processing conditions on fiber characteristics. Work is also underway to combine biofibers with biopolymer to develop novel green biodegradable composites.