The multi-walled carbon nanotubes (MWCNTs) are functionalized by self-assembled surfactant layers after sonication in anionic surfactant sodium dodecyl sulfate (SDS) aqueous solution. The tribological properties of the SDS-functionalized MWCNTs as additive in water-based lubricants were evaluated with a four-ball tester. The results show that the SDS-functionalized MWCNTs exhibit good anti-wear and friction reduction properties as well as enhanced load-carrying capacity. The maximum non-seizure load (PB value) can be raised about 3–7 times when SDS-functionalized MWCNTs were added into water. The mechanism of SDS-functionalized MWCNT additive was investigated with scanning electron microscopy (SEM), Auger electron spectroscopy (AES), and Raman spectroscopy. These preliminary results show a promise in applications of surfactant functional carbon nanotubes as an additive in water.