In this study, the effects of two variable parameters namely nanoclay and coupling agent on the durability against fungal attack and water absorption of wood plastic composites (WPCs) were investigated. Composites based on high density polyethylene (HDPE), sanding dusts (SDs), and nanoclay (montmorillonite type) were made by melt compounding and then hot-pressing. Maleic anhydride grafted polyethylene (MAPE) was used as coupling agent. Treated and untreated (control) composites were exposed to the fungal decay using white-rot fungus (Trametes versicolor) for 4, 8, and 12 weeks according to the modified ASTM D 1413 standard. The experimental results indicated that the exposure of the composites to a five-cycle of boiling and drying caused serious damage to the interfacial adhesion between SDs and HDPE matrix due to contraction and swelling stresses developed during the cyclic immersion. The composites filled with nanoclay were more resistant than the control sample to decay. However, based on statistical analysis significant differences in water absorption of the composites were not observed after addition of nanoclay. In general, fungal degradation and water absorption were significantly decreased by the incorporation of MAPE. However, addition of 6 wt% MAPE improved both properties more than 3 wt% MAPE. Morphological studies showed fungal colonization and some micro voids, which accelerate water absorption. In conclusion, this work has shown that addition of nanoclay and coupling agent can considerably decrease fungal decay and water absorption of WPCs.