A method using a combination of ball milling, acid hydrolysis, and ultrasound was developed to obtain a high yield of cellulose nanofibers from flax fibers and microcrystalline cellulose (MCC). Poly(vinyl alcohol) (PVA) nanocomposites were prepared with these additives by a solution-casting technique. The cellulose nanofibers and nanocomposite films that were produced were characterized with Fourier transform infrared spectrometry, X- ray diffraction, thermogravimetric analysis, scanning electron microscopy, and transmission electron microscopy. Nanofibers derived from MCC were on average approximately 8 nm in diameter and 111 nm in length. The diameter of the cellulose nanofibers produced from flax fibers was approximately 9 nm, and the length was 141 nm. A significant enhancement of the thermal and mechanical properties was achieved with a small addition of cellulose nanofibers to the polymer matrix. Interestingly, the flax nanofibers had the same reinforcing effects as MCC nanofibers in the matrix. Dynamic mechanical analysis results indicated that the use of cellulose nanofibers (acid hydrolysis) induced a mechanical percolation phenomenon leading to outstanding and unusual mechanical properties through the formation of a rigid filler network in the PVA matrix. X-ray diffraction showed that there was no significant change in the crystallinity of the PVA matrix with the incorporation of cellulose nanofibers. © 2009 Wiley Periodicals, Inc.