In this investigation, naturally woven coconut sheath is used as a new type of reinforcement. The hybrid composites are developed with the combination of naturally woven coconut sheath/E-glass/nanoclay using unsaturated polyester matrix and the effect of nanoclay on the mechanical and free vibration behavior is studied. It is found that the addition of nanoclay improved the mechanical and damping properties of the composite owing to the improved stiffness of the matrix by better dispersion of clay. In addition, the effect of alkali and silane treatments on fibers and different stacking sequence were investigated. It was observed that the alkali treatment of fibers improved the mechanical properties of the composites when cellulose fiber was present. This investigation presented a peculiar result in the case of silane treatment with the nanoclay, which is in contradiction with the earlier works. The stacking sequence of coconut sheath/coconut sheath/glass with alkali treatment of fibers provides the optimum increase in mechanical strength and free vibration characteristics. X-ray diffraction and transmission electron microscope were performed to understand the dispersion of nanoclay and its strengthening mechanism. In addition, scanning electron microscopy was used for fractography analysis. This investigation suggests an alternative material for the field of composites.