Abstract: The present invention provides a process for the preparation of polyurethane polyol from cardanol, derived from cashew nut shell liquid, a renewable resource material. The polyol is made by oxidation with peroxy acid generated in-situ to give epoxidised cardanol and the said epoxy derivative is converted to the polyol in the presence of the organic acid. According to another aspect of the present invention the cardanol-based polyol formed by the novel method of this invention may be reacted with isocyanate to form polyurethane. Alternatively blowing agents are included with the cardanol-based polyol before it is reacted with the isocyanate. These polyols are especially suitable for making rigid foams of very low density and high compressive strength.