The overall aim of this work was to gain more insight on the potential of modified wood (TMW) components for use in wood-thermoplastic composites (WPCs). Laboratory-scale TMWPCs were produced, and the effects of severe water soaking-drying cycles on the samples were studied. Water sorption behavior and resulting dimensional and micromorphological changes were also studied, and the results were compared with those of unmodified wood-plastic composites (UWPCs) used as control. The TMW was prepared by cutting a spruce board into half and subjecting one-half to an atmosphere of superheated steam at atmospheric pressure with a peak temperature of 210°C, with the other unmodified wood (UW) half as a control. The TMW and UW components were then prepared by a Wiley mill and thereafter sifted into smaller (mesh 0.20-0.40 mm) and larger (mesh 0.40-0.63 mm) size fractions. A portion of the wood components were also subjected to hydrothermal extraction (HE). Composite samples with these different wood components, polypropylene (PP) matrix, and maleated PP (MAPP) as coupling agent (50/48/2 wood/PP/ MAPP ratio by weight) were then prepared by using a Brabender mixer followed by hot pressing. The matching micromorphology of the composites before and after the soaking-drying cycles was analyzed using a surface preparation technique based on ultraviolet-laser ablation combined with scanning electron microscopy. The results of the water absorption tests showed, as hypothesized, a significantly reduced water absorption and resulting thickness swelling at the end of a soaking cycle for the TMWPCs compared with the controls (UWPCs). The water absorption was reduced with about 50-70% for TMWPC and 60-75% for HETMWPC. The thickness swelling for TMWPCs was reduced with about 40-70% compared with the controls. Similarly, the WPCs with HE-UW components absorbed about 20-45% less moisture and showed a reduced thickness swelling of about 25-40% compared with the controls. These observations also were in agreement with the micromorphology analysis of the composites before and after the moisture cycling which showed a more pronounced wood-plastic interfacial cracking (de-bonding) as well as other microstructure changes in the controls compared with those prepared with TMW and HE-UW components. Based on these observations, it is suggested that these potential bio-based building materials show increased potential durability for applications in harsh outdoor environments, in particular TMWPCs with a well-defined and comparably small size fractions of TMW components.