A new cable sheath compound made of polyethylene (PE) and montmorillonite (MMT) nanocomposite by melt intercalation is developed. FTIR test shows that the organo-cations have had exchange reaction with Na~+ in the MMT. And XRD test shows that PE has entered into layers of montmorillonite to form intercalated nanocomposite. The thermal and mechanical properties of PE/MMT nanocomposite are tested. The results show that it exhibits significant improvement in both heat resistance and mechanical performance over traditional PE sheath compound.