A strategy is devised for the conversion of hydrophilic cellulose nanofibrils (CNFs) into hydrophobic CNF that form a stable nanocomposite dispersion for functional reinforcement of a polypropylene matrix. For that purpose, CNF was converted to a CNF-based microinitiator through an esterification reaction on the nanofibril surfaces, which efficiently initiated the controlled radical grafting polymerization of stearyl acrylate. The grafting-from modification was performed with and without a sacrificial initiator and verified with solid-state 13C nuclear magnetic resonance and Fourier transform infrared spectroscopy. CNF-based nanocomposites were prepared using the combination of a twin-screw mini extruder and melt pressing. Scanning electron microscopy reveals a homogeneous dispersion of the hydrophobic CNF in composite matrix with no signs of aggregation. Hydrophobic CNF showed a strong compatibility with the polypropylene matrix.