We studied the use of poly(ethylene glycol) (PEG)-modified dendrimers as a nanocapsule with a bio-compatible surface. We designed PEG-modified dendrimers having a shell of hydrophobic amino acid residues in the peripheral moiety of the dendrimer to increase their encapsulation ability. Subsequently, L-phenylalanine or gamma-benzyl-L-glutamate residues were introduced to all chain ends of the poly(amidoamine) G4 dendrimers. Furthermore, PEG (MW 2000) chains were attached to the amino acid residues. These hydrophobic amino acid residues rendered the PEG-modified dendrimers as more compact. After binding of Rose Bengal (RB) guest molecules to dendrimers, an assay using the Klotz plot showed that the hydrophobic amino acid layer slightly affected the guest site number, but significantly increased intrinsic binding of the dendrimers to guest molecules. The PEG-modified dendrimers with the hydrophobic amino acid layer were better able to retain guest molecules than the dendrimer without the layer: they are therefore useful for drug delivery. (C) 2008 Elsevier Ltd. All rights reserved.