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ABSTRACT The surface of magnesium hydroxide (MDH) was modified using waterborne polyurethane (WPU), resulting in the successful grafting of WPU macromolecules onto the MDH surface to yield well‐dispersed composite particles (WPU‐MDH). The microstructure, chemical composition, and crystal phase of the modified particles were systematically characterized through scanning electron microscopy (SEM), transmission electron microscopy (TEM), X‐ray diffraction (XRD), X‐ray photoelectron spectroscopy (XPS), and Fourier‐transform infrared spectroscopy (FT‐IR). The results indicated that the successful grafting of WPU effectively inhibited MDH agglomeration, increasing its water contact angle from 28° to 74° and significantly enhancing the dispersion of the filler within the polypropylene (PP) matrix. WPU‐MDH was incorporated into PP to prepare composite materials. When the WPU‐MDH content reached 20 wt%, the tensile strength, apparent yield strain, elongation at break, and impact strength of the PP/WPU‐MDH composites increased by 50.8%, 5.3%, 215.1%, and 25.0%, respectively, compared to PP containing 20 wt% MDH. The observed performance enhancement stemmed from two primary factors: first, the flexible interface layer formed by WPU debonded controllably under stress, inducing micro‐porosity and matrix shear yielding, which dissipated fracture energy; second, WPU‐MDH facilitated the formation of the β crystal type in PP, as confirmed by the shoulder peak at 117°C in differential scanning calorimetry (DSC), thereby toughening the material through the crystal slip mechanism. This study presents a novel modification approach for enhancing the dispersion of MDH in the PP matrix and offers valuable insights for the development of high‐performance polypropylene composites.