We report on UV-vis absorption and picosecond emission studies of methyl 2-amino-4,5-dimethoxy benzoate in neutral water and complexed to alpha-, beta-, and gamma-cyclodextrin (CD). Upon encapsulation, the emission intensity and the fluorescence lifetime increase, indicating a hydrophobic effect of the nanocages on the photophysical behavior of the guest. beta-CD confinement shows the largest effect. The time-dependent frequency shift of the emission (similar to 720 cm(-1)) in beta-CD nanocavity is larger than the one observed in water (similar to 490 cm(-1)) due to the hydrophobic and polarity effect of the nanocage and reflects a strengthening of the intramolecular H-bond of the encapsulated dye upon electronic excitation. Anisotropy measurements indicate a free motion of the guest into the nanocavity. The observed results are relevant to the hydrophobic as well as hydrophilic interactions which govern photochemistry and photophysics of caged drugs, organic, and biological systems.