Plasticization of polylactic acid (PLA) was carried out by melt mixing with epoxidized soybean oil (ESO) as a fully bio-based and biodegradable plasticizer. An attempt was also made to study the role of organoclay on morphology development and its impact on mechanical properties of organoclay filled plasticized sample. The results of thermal analysis (DMA and DSC) and melt rheological measurements revealed that organoclay had a considerable enhancement effect on miscibility of PLA/ESO blend. This was also found that kinetically localization of organoclay in PLA matrix and/or interface had a significant reduction in droplet size of ESO. This resulted in a remarkable increase in toughness of nanocomposite sample. The observed toughening mechanism could be explained by the same mechanism introduced for immiscible blends with matrix-dispersed morphology containing nano particles. Keywords: PLA, miscibility, toughening, ESO