The nanocomposite materials containing rare earths, titanium dioxide and clay (RE/TiO2/Clay) were characterized and tested for the photocatalytic decomposition of formaldehyde. The results show that nanocomposite materials prepared by doping appropriate rare earth elements have better photocatalytic properties than that prepared by doping excessive rare earth elements. The photocatalytic mechanism of composite materials was studied by integrating the theory of photocatalysis with experiment results. Because the site of photocatalytic reaction was limited in the interspace of clay, photocatalytic reaction occurred by two steps: firstly, organic molecules dispersed into the interlayers of clay; secondly, organic molecules and photocatalyst of RE/TiO2 occurred photocatalytic reaction, resulting in forming carbon dioxide.