Carbon black (CB) is a preferred nano-reinforcer for conventional polymers, but it exhibit poor dispersibility, which makes it difficult for further application in the coating industry. Here we prepared hydroxylated carbon black (OCB) by a mild oxidation process and then covalently encapsulated with a urethane chains shell via in situ polymerization, and thus encapsulated carbon black (EOCB) particles were achieved. Surface chemical composition of the EOCB particles was thoroughly characterized by FT-IR, TGA, XPS, and EA techniques, and its dispersion properties in aqueous medium were studied by DLS, natural sedimentation, and TEM analyses. It was found that EOCB possessed a high encapsulation percentage, and showed excellent self-dispersibility and prominent stability in aqueous medium. Furthermore, intensive investigation demonstrated that PUB/EOCB composite, that prepared by blending EOCB particles with a polyurethane binder (PUB), exhibited improved mechanical property, water resistance and matting appearance, which probably due to the strong hydrogen bonds between the EOCB particles and the PUB matrix. This work provides a potential avenue for designing CB-based microcapsules and makes it promising application in waterborne coatings.