The main benefits of incorporating wood-fibers in plastics are the increased stiffness and lowered cost of the resulting composites. However, these improvements are usually accompanied by loss in the ductility and impact resistance of the composites. These shortcomings can be significantly improved by effectively foaming and incorporating a fine-cell structure in the composites. This thesis presents the development of the processing methodology for the manufacture of fine-celled plastic/wood-fiber composite (PWC) foams and focuses on the elucidation of the fundamental foaming mechanisms and the related issues involved. The volatiles evolved from the wood-fiber during extrusion processing play a dominant role in the foaming process, and can lead to gross deterioration of cell structure unless proper strategies are adopted to limit their contribution to foaming. Thermal analysis of wood-fibers (from pine wood) revealed that apart from moisture, a substantial part of the volatile emissions were evolved from the ‘extractives’, and hence can contribute to the foaming process as a blowing agent. A tandem extrusion system was developed which could effectively control the volatile wood-fiber emissions, and produce fine-celled PWC foams having the desired density and cell morphology. A series of critical experiments were performed to develop a suitable methodology for controlling the foam density and cell morphology. Fundamental foaming mechanisms for different foaming conditions are proposed.