This thesis is intended to investigate the feasibility of continuous extrusion processing of fine-celled plastic/wood-fiber composite foams using CO₂ as a physical blowing agent. The plastic/wood-fiber composites utilize wood-fibers as a reinforcing filler in the plastic matrix and are known to be advantageous over the neat plastics in terms of the materials cost and some improved mechanical properties such as stiffness and strength. However, these improvements are usually accompanied by sacrifices in the ductility and impact resistance. These shortcomings can be highly reduced by fine-celled and microcellular foaming of these composites to create a new class of materials with unique properties. An innovative tandem extrusion system with continuous and stable feeding, on-line moisture removal and CO₂ injection was successfully developed. The effects of both wood-fibers and CO₂ contents on the cell morphology and foam properties were studied. The cell morphology and foam properties modified by a coupling agent was greatly improved compared to unmodified composites. The tandem extrusion system was compared with a single extruder system to demonstrate the significant improvement in cell morphology resulting from uniform mixing and effective moisture removal. A scanning electron microscope (SEM) and a digital optical camera were used to characterize the cell morphology and extrudate profiles. The experimental results clearly proved that it is feasible to create fine-celled structures in the plastic/wood-fiber composite foams using environmentally-friendly CO₂.