We demonstrate the dispersion and noncovalent functionalization of carbon nanotubes in water using peptide amphiphiles each consisting of a short hydrophobic alkyl tail coupled to a more hydrophilic peptide sequence. The assembly of peptide amphiphile molecules on the surfaces of carbon nanotubes adds biofunctionality to these one-dimensional conductors and simultaneously eliminates the hydrophobic nanotube-water interface, thus dispersing them in the aqueous medium. This should occur without the degradation of their structural, electronic, and optical properties caused by covalent functionalization and without the need for specific peptide sequences designed to bind with nanotube surfaces. The encapsulation by peptide amphiphiles is confirmed using transmission electron microscopy and optical absorbance spectroscopy and may have significant future applications in biosensing or medicine.