Waterborne nanostructured polyurethane with reactive polyhedral oligomeric silsesquioxanes (POSS) hybrid dispersions were synthesized via environmentally-friendly aqueous dispersion through the prepolymer mixing process. To improve the distribution of the POSS monomer in the polyurethane aminoethylaminopropylisobutyl polyhedral oligomeric silsesquioxane was first prereacted with excess isophorone diisocyanate in N-methylpyrrolidone. After this reaction the process was continued by reaction with poly(hexylene adipate - isophthalate) diol, dimethylol propionic acid, and hexamethylene diamine. Dispersion of the polymer was accomplished with triethyl amine as the neutralizing base. The particle size and viscosity of the dispersions were not affected by POSS loading. The resulting polyurethane dispersions did show evidence of some phase inhomogeneity as evidenced by wide angle X-ray diffraction patterns of cast films. Although the incorporation of the POSS monomers did not have a significant effect on the dispersion's properties; the physical properties of the isolated polymers films did display significant changes, with notable increases in storage modulus, Tg, and complex viscosity. POSS was found to react strongly with only the hard segments of PU (urethane segments), while the soft segment was not affected by the presence of POSS. This experimental fact was confirmed by the increase in the Tg of the hard segments with increasing concentration of POSS as measured by DMA.