The objective of this work was to study the effect of chemical pre-treatment and moisture content of wood chips on the wood particle aspect ratio after compounding in a twin-screw extruder and on the mechanical properties of wood–polymer composites (WPCs). Composites with 50wt.% wood content were manufactured using pre-treated and untreated wood chips. The effect of wood moisture content on composite properties was studied by using dried and undried wood chips. The mechanical properties and fracture surfaces of the composites as well as the microstructure and aspect ratio of wood particles after compounding were studied. The highest wood particle aspect ratio after extrusion was achieved by using pre-treated, undried wood chips as raw material. The chemical pre-treatment was found to enhance the defibration of wood chips as well as the mechanical properties of the composites.