Wood-plastic composites (WPCs) can absorb moisture in a humid environment due to the hydrophilic nature of the wood in the composites, making products susceptible to microbial growth and loss of mechanical properties. This study tested the concept of using coextrusion technology to manufacture two-layer coextruded wood-plastic composites encapsulated with a plastic surface-rich cap layer for improving their water resistance, mechanical performance, and weathering resistance. The results indicated that WPCs can be encapsulated by a neat rigid PVC or HDPE cap layer, or a PVC-based composites (wood flour or carbon nanotube filled rigid PVC) cap layer in a coextrusion process. The moisture uptake rate was lower when a PVC surface-rich cap layer was applied in the composites, and the extent of the decrease was a strong function of the amount of wood flour in the cap layer but insensitive to cap layer thickness. Coextruding PVC surface-rich cap layers on WPCs significantly increased the flexural strength but decreased the flexural modulus as compared with those of control samples. The changes in bending properties were sensitive to both cap layer thickness and wood flour content in the cap. In order to obtain coextruded WPCs with better flexural properties than uncapped WPCs, a two-level factorial design was used to evaluate the statistical effects of material compositions and processing conditions on these properties. Material composition variables were the wood flour content in the core layer and the carbon nanotube (CNT) content in the cap layer of coextruded composites. The processing condition variable was the processing temperature profile for the core layer. Factors leading to a fast fusion of the PVC-wood flour composites in the core layer, i.e. low wood flour content and high processing temperature, improved the flexural properties of coextruded composites. Reinforcing the cap layer with CNTs produced a significant improvement in the flexural properties of the coextruded composites, insensitive to the core layer composition and the processing temperature condition. Moreover, this study also examined the effect of coextruding a clear HDPE cap layer onto HDPE/wood-flour composites on the discoloration of coextruded composites exposed to accelerated UV weathering tests. Two separate discoloration characteristics occurred in the discoloration of composites. For uncapped WPCs, chemical changes due to photooxidation resulted in darkening followed by physical changes, including loss of colored wood components from the surface, as well as increased roughness on the surface, which led to lightening of WPCs. By contrast, because a hydrophobic cap layer prevented the loss of colored components from the surface, coextruding a clear hydrophobic HDPE cap layer over WPCs significantly decreased the discoloration upon weathering. Photooxidation of wood components at the interface accounted for the discoloration of coextruded WPCs before the failure of cap layer. As the cap layer absorbed a specified amount of UV light and reduced oxygen available to interface, it decreased the photooxidation rate at the interface compared to that at the WPCs surface.