We describe a simple and versatile method to prepare water-soluble nanostructures by encapsulating hydrophobic nanocrystals with diblock copolymer micelles. Various hydrophobic nanocrystals, including metal, magnetic and semiconductor nanoparticles are encapsulated within amphiphilic polystyrene-block-poly(acrylic acid) block polymer. The resulting water soluble nanoparticles have well defined core-shell structure, and exhibit extraordinary stability. The physical properties of the nanocrystals are retained after encapsulation.