Today, wood-plastic composites (WPC) are mainly used in outdoor applications (e.g. as replacement for traditional preservative-treated wood). In such environments, moisture sorption combined with temperature induced movements of the polymer matrix may cause macroscopic dimensional changes and distortion (e.g. warping, cupping, and bowing of the composite boards as well as microscopic wood polymer interfacial cracks). Moisture uptake (diffusion/capillary penetration) in the composite also makes the wood component more susceptible for fungal growth and decay. Furthermore, the durability of the composite product may be further decreased by UV degradation effects. By using a modified wood component which is less hygroscopic, these problems could be minimized or entirely avoided. The objective of this work is to study the moisture sensitivity of WPCs made from modified wood and the effects of moisture sorption on the composites micromorphology, wood polymer interfacial behavior, and durability. The three modification methods used in this work are acetylation, furfurylation, and heat treatment. The technique used for studying the composite micromorphology was based on LV-SEM (low-vacuum scanning electron microscopy) combined with a specially designed specimen preparation technique by UV-laser ablation. Results show that wetting and drying of WPCs result in severe inner micro-cracks and interfacial debonding. These effects are, however, greatly reduced for WPCs made from the modified wood used in this study. In addition, the resistance to decay by fungi of such WPCs is significantly improved.