Dairy farmers worldwide are facing the difficulty of managing or disposing of dairy manure. Anaerobic digestion (AD) is an option for treating dairy manure and producing biogas. A byproduct of AD is fiber, which is only partially being used despite its potential for different products, including wood plastic composites (WPCs). However, some properties of WPCs need to be improved to use them in high moisture content environments. This work evaluates the effect of hot water extraction (HWE) (at 160 °C for 60 min) of the AD dairy fiber on properties of WPCs. WPCs were produced using AD fiber via extrusion and tested for mechanical properties and water affinity. The WPCs produced with HWE fiber exhibited increased mechanical strength (36%) and stiffness (30%), and reduced strain at break (15%) compared to composites produced with untreated fiber. Water sorption and thickness swelling were reduced by 39% and 36%, respectively, after immersion in water for 98 days. The diffusion constant of WPCs produced with HWE fiber was also reduced by 64%. These results show that HWE is an effective method for enhancing mechanical properties and reducing hydrophilicity of WPCs produced from AD fiber.