Water-mediated interactions (WMIs) play diverse roles in molecular biology. They are particularly relevant in geometrically confined spaces such as the interior of the chaperonin, at the interface between ligands and their binding partners, and in the ribosome tunnel. Inspired in part by the geometry of the ribosome tunnel, we consider confinement effects on the stability of peptides. We describe results from replica exchange molecular dynamics simulations of a system containing a 23-alanine or 23-serine polypeptide confined to nonpolar and polar nanotubes in the gas phase and when open to a water reservoir. We quantify the effect of water in determining the preferred conformational states of these polypeptides by calculating the difference in the solvation free energy for the helix and coil states in the open nanotube in the two phases. Our simulations reveal several possibilities. We find that nanoscopic confinement preferentially stabilizes the helical state of polypeptides with hydrophobic side chains, which is explained by the entropic stabilization mechanism proposed on the basis of polymer physics. Polypeptide chains with hydrophilic side chains can adopt helical structures within nanotubes, but helix formation is sensitive to the nature of the nanotube due to WMIs. We elaborate on the potential implications of our findings to the stability of peptides in the ribosome tunnel.