In order to restrain electric-stress impacts of water micro-droplets in insulation defects under alternating current (AC) electric fields in crosslinked polyethylene (XLPE) material, the present study represents chemical graft modifications of introducing chloroacetic acid allyl ester (CAAE) and maleic anhydride (MAH) individually as two specific polar-group molecules into XLPE material with peroxide melting approach. The accelerated water-tree aging experiments are implemented by means of a water-blade electrode to measure the improved water resistance and the affording mechanism of the graft-modified XLPE material in reference to benchmark XLPE. Melting–crystallization process, dynamic viscoelasticity and stress-strain characteristics are tested utilizing differential scanning calorimeter (DSC), dynamic thermomechanical analyzer (DMA) and electronic tension machine, respectively. Water-tree morphology is observed for various aging times to evaluate dimension characteristics in water-tree developing processes. Monte Carlo molecular simulations are performed to calculate free-energy, thermodynamic phase diagram, interaction parameter and mixing energy of binary mixing systems consisting of CAAE or MAH and water molecules to evaluate their thermodynamic miscibility. Water-tree experiments indicate that water-tree resistance to XLPE can be significantly improved by grafting CAAE or MAH, as indicated by reducing the characteristic length of water-trees from 120 to 80 μm. Heterogeneous nucleation centers of polyethylene crystallization are rendered by the grafted polar-group molecules to ameliorate crystalline microstructures, as manifested by crystallinity increment from 33.5 to 36.2, which favors improving water-tree resistance and mechanical performances. The highly hydrophilic nature of CAAE can evidently inhibit water molecules from aggregating into water micro-droplets in amorphous regions between crystal lamellae, thus acquiring a significant promotion in water-tree resistance of CAAE-modified XLPE. In contrast, the grafted MAH molecules can enhance van der Waals forces between polyethylene molecular chains in amorphous regions much greater than the grafted CAAE and simultaneously act as more efficient crystallization nucleation centers to ameliorate crystalline microstructures of XLPE, resulting in a greater improvement (relaxation peak magnitude increases by >10%) of mechanical toughness in amorphous phase, which primarily accounts for water-tree resistance promotion.