The stability and structure of water clusters in a confined nonpolar environment is investigated theoretically by examining the encapsulation of water molecules inside a fullerene (C-60) cage. While the Hartree-Fock (6-31G) calculations suggest H2O@C-60 to be marginally more stable (-0.5 kcal/mol) than the isolated water and C-60 molecules, second order Moller-Plesset perturbation theory suggests it to be much more stable (-9.9 kcal/mol). It is shown that encapsulation results in the breaking of hydrogen bonds and rearrangement of water clusters. The tetramer inside the cage, for example, is tetrahedral in arrangement, in contrast to a square planar geometry observed in the gas phase. (c) 2005 Elsevier B.V. All rights reserved.