The effect of nanoclay dispersion on the thermo - mechanical properties of an unsaturated polyester thermoset resin was studied by flexural and dynamic mechanical property measurements. Transmission electron microscopy studies revealed intercalated clay dispersion morphology in the nanocomposites. The thermomechanical measurements showed a steady decrease in the flexural strength and α relaxation temperature, with only moderate increase in the storage modulus at 1% clay loading, followed by a drop at higher clay loadings. In order to understand the absence of nano-effect in this case, free volume measurements were carried out by using positron annihilation lifetime spectroscopy. A bimodal distribution of o-Ps life times was observed. Nanoclay loading resulted in the increase of the o- Ps intensity corresponding to the longest life time as well as free volume fraction suggesting diminished chain packing efficiency in the nanocomposites. We posit that nanoclay induced decreased chain packing efficiency and the presence of higher free volume size elements might cause deterioration in mechanical properties of the nanocomposites.