Recently, biopolymer-based nanocomposites have been replacing synthetic polymer composites for various biomedical applications. This is often because of the biocompatible and biodegradable behavior of natural polymers. Several studies have been reported pertaining to the synthesis and characterization of chitosan(chi)/montmorillonite(MMT) and chitosan (chi)/hydroxyapatite (HAP) for tissue engineering applications. In the present work, a biopolymer-based novel nanocomposite chitosan/montmorillonite (MMT)/hydroxyapatite (HAP) was developed for biomedical applications. The composite was prepared from chitosan, unmodified MMT and HAP precipitate in aqueous media. The properties of the composites were investigated using x-ray diffraction (XRD), Fourier transform infrared spectroscopy (FTIR), atomic force microscopy (AFM) and thermogravimetric analysis (TGA). Nanomechanical properties were measured using nanoindentation. Cell culture experiments were also conducted in order to ascertain the biocompatibility of the composite. The XRD results indicate that an intercalated structure was formed with an increase in d-spacing of montmorillonite. FTIR studies provide the evidence of molecular interaction among the three different constituents of the composite. AFM images show well-distributed nanoparticles in the chitosan matrix. The composites also exhibit a significant enhancement in nanomechanical property as compared to pure chitosan as well as the chi/HAP and chi/MMT composites. The TGA results indicate that an intercalated nanocomposite was formed with improved thermal properties even compared to chi/MMT composites. The results of cell culture experiments show that the composite is biocompatible and has a better cell proliferation rate compared to chi/HAP composites. This work represents the design of a novel clay-chitosan-hydroxyapatite composite with improved mechanical properties that has potential applications in bone tissue engineering.