This work was done to improve the interfacial adhesion and engineering performance of polyvinyl alcohol/polylactic acid laminate film by altering the polyvinyl alcohol phase surface properties via incorporating microfibrillated cellulose modified by propionylation. Incorporating the modified microfibrillated cellulose into polyvinyl alcohol film improved adhesion between film layers during the laminating process. Improved peel strength and tensile properties confirmed that modified microfibrillated cellulose can produce better bonding between polyvinyl alcohol and polylactic acid via mechanical interlocking and cohesive forces at the film interface. Modified microfibrillated cellulose (3 wt%) increased the peel strength by 40% comparing with the neat polyvinyl alcohol/polylactic acid laminate film.The reduction of both moisture absorption and diffusion rate of the modified microfibrillated cellulose–polyvinyl alcohol/polylactic acid to 20 and 23%, respectively, also indicated that the modified microfibrillated cellulose could inhibit moisture permeation across the film. This was because the modified microfibrillated cellulose is hydrophobic. Furthermore, the addition of modified microfibrillated cellulose also increased the decomposition temperature of the laminate film up to 10% as observed at 20% of remaining weight, while the storage modulus substantially increasing to 72% relative to the neat laminate film.The superior interfacial adhesion between the polylactic acid and modified microfibrillated cellulose–polyvinyl alcohol layers, observed by scanning electron microscopy, confirmed the improved compatibility between the polyvinyl alcohol and polylactic acid phases. © The Author(s) 2020.