A novel biodegradable amphiphilic diblock copolymer methoxy poly(ethylene glycol)-b-poly(epsilon-caprolactone-co-gamma-hydroxyl-epsilon-caprolactone) (mPEG-b-P(CL-co-HCL)) bearing pendant hydroxyl groups on the PCL block was prepared. The hydroxyl groups were formed through the reduction of ketones by sodium borohydride without protection and deprotection. The obtained polymers were well characterized by H-1 NMR, Fourier transform infrared (FT-IR), gel permeation chromatography (GPC), differential scanning calorimetry (DSC), X-ray diffraction (XRD), and contact angle measurement. mPEG-b-P(CL-co-HCL) could self-assemble into stable nanoparticles (NPs) with critical micellar concentrations (CMC) of 6.3 x 10(-4), similar to 8.1 x 10(-4) mg/mL. The NPs prepared from mPEG-b-P(CL-co-HCL) were spherical in shape with diameters about 100 to 140 nm. The hydrophobic doxorubicin (DOX) was chosen as a drug model and successfully encapsulated into the NPs. The encapsulation efficiency and release kinetics of DOX were investigated. The results indicated that the introduction of hydroxyl groups onto the core-forming block could decrease the hydrophobicity of copolymers, thus improving the storage stability of NPs in aqueous solution. Moreover, higher loading capacity and slower in vitro release of DOX were observed, which was due to the hydrogen-bonding formation between DOX and hydroxyl groups. Meanwhile, the MTT assay demonstrated that the blank NPs were biocompatible to HepG2 cells while free DOX and DOX-loaded NPs showed significant cytotoxicity against the cells. Moreover, Compared to the free DOX, the DOX-loaded NPs were more efficiently internalized by HepG2 cells. In sum, the introduction of hydroxyl groups on the polyester block in mPEG-b-P(CL-co-HCL) exhibited great potentials for modifications in the stability, drug solubilization, and release properties of NPs.