Surface effects on the phase separation dynamics, morphologies, and electro-optic properties of thin polymer-dispersed liquid crystal (PDLC) cells are investigated. Four types of surface alignment layers were studied: ITO only, Polyimide (PI) without rubbing, homogeneous cell, and 90° twisted nematic (TN) cell. The ITO-only and non-rubbed PI cells do not provide enough anchoring force to prevent LC droplets flow and coalesce. As a result, the droplets are larger and less uniform. For the homogeneous and TN cells with sufficiently high anchoring energy, almost all the nucleated LC droplets grow at a fixed position during phase separation. The appearance of the coalescence is not obvious and the formed LC droplets are relatively uniform. For the rubbed cells with polar anchoring energy >2x 10-4 J/m2, the droplet size is smaller and more uniform than those in the conventional PDLC cell. The phase separation dynamics determine the final composite morphology which affects the electro-optic properties of a PDLC device. The morphologies in the homogeneous and TN cells are similar, but the TN cell is polarization independent while the homogeneous cell is polarization dependent. Moreover, the TN PDLC cell exhibits a higher contrast ratio. The light shutter made of TN PDLC shows no haze and 5-10 ms response time.