Recycled polyethylene-terephthalate (rPET) nanocomposites of reduced flammability were prepared by combining aluminum-alkylphosphinate (AlPi) flame retardant (FR) and natural montmorillonite (MMT), in order to demonstrate that durable, technical products can be produced from recycled materials. During the development of the material, by varying the FR content, the ratio and the type of MMTs, rheological, morphological, mechanical and flammability properties of the nanocomposites were comprehensively investigated. Related to the differences between the dispersion and nucleation effect of MMT and organo-modified MMT (oMMT) in rPET matrix, analyzed by Scanning Electron Microscopy (SEM), Energy Dispersive X-Ray Spectroscopy (EDS) and Differential Scanning Calorimetry (DSC), mechanical properties of the nanocomposites changed differently. The flexural strength and modulus were increased more significantly by adding untreated MMT than by the oMMT, however the impact strength was decreased by both types of nanofillers. The use of different type of MMTs resulted in contradictory flammability test result; time-to-ignition (TTI) during cone calorimeter tests decreased when oMMT was added to the rPET, however MMT addition resulted in an increase of the TTI also when combined with 4% FR. The limiting oxygen index (LOI) of the oMMT containing composites decreased independently from the FR content, however, the MMT increased it noticeably. V0 classification according to the UL-94 standard was achieved with as low as 4% FR and 1% MMT content. The applicability of the upgraded recycled material was proved by a pilot experiment, where large-scale electronic parts were produced by injection molding and characterized with respect to the commercially available counterparts.