As one of eco-friendly bio-fibers, wood-fiber has been incorporated in plastics to make wood-fiber/plastic composites (WPC) with an increased stiffness, durability and lowered cost. However, these improvements are usually accompanied by loss in the ductility and impact strength of the composites. These shortcomings can be significantly improved by incorporating a fine-cell foam structure in the composites. This thesis presents the development of the foaming technology for the manufacture of fine-cell WPC foams with environmentally benign physical blowing agents (PBAs), and focuses on the elucidation of the fundamental foaming mechanisms and the related issues involved. One critical issue comes from the volatiles evolved from the wood-fiber during high temperature processing. The volatiles, as a blowing agent, can contribute to the foaming process. However, they lead to gross deterioration of the cell structure of WPC foams. The presence of volatiles makes foaming of WPC "a poorly understood black art". With the use of PBAs, a strategy of lowering processing temperature becomes feasible, to suppress the generation of volatiles. A series of PBA-based experiments were designed using a statistical design of experiments (DOE) technique, and were performed to establish the relationship of processing and material variables with the structure of WPC foams. Fundamental foaming behaviors for two different PBAs and two different polymer systems were identified. WPC foams with a fine-cell morphology and a desired density were successfully obtained at the optimized conditions. Another limitation for the wider application of WPC is their flammability. Innovative use of a small amount of nano-clay in WPC significantly improved the flame-retarding property of WPC, and the key issue was to achieve a high degree of exfoliation of nano-particles in the polymer matrix, to achieve a desired flammability reduction. The synergistic effects of nano-particles in foaming of WPC were identified as well.