We demonstrate here a concept that chemical reactions can be enhanced by utilizing the confined hydrophobic environment of carbon nanotube (CNT) channels to separate products from reactants during a reaction and hence shift the reaction equilibrium. Taking the hydroxylation of benzene to phenol as an example, we observed that benzene is enriched inside CNT channels while the product phenol was discriminatively expelled out of the channels, as shown by solid state NMR studies. Consequently, the reaction over a CNT-confined Re catalyst exhibited a 4 times higher activity than the same catalyst dispersed on the outer walls of the same CNTs. The effect of this selective enrichment of benzene on the reaction was further confirmed by varying the amount of benzene in the reaction over commercial activated carbon-supported catalyst. CNT channels discriminating hydrophobic from hydrophilic molecules are expected to be a general feature. It is of significance for many synthetic organic processes involving molecules with different hydrophobicity in the reactants and products.