Designing drilling fluids for drilling in deep gas reservoirs and geothermal wells is a major challenge. Cooling drilling fluids and preparing stable mud with high thermal conductivity are of great concern. Drilling nanofluids, i.e. a low fraction of carbon nanotube (CNT) well dispersed in mud, may enhance the mixture thermal conductivity compared to the base fluids. Thus, they are potentially useful for advanced designing high temperature and high pressure (HTHP) drilling fluids. In the present study, the impacts of CNT volume fraction, ball milling time, functionalization, temperature, and dispersion quality (by means of scanning electron microscopy, SEM) on the thermal and rheological properties of water-based mud are experimentally investigated. The thermal conductivities of the nano-based drilling fluid are measured with a transient hot wire method. The experimental results show that the thermal conductivity of the water-based drilling fluid is enhanced by 23.2% in the presence of 1 vol% functionalized CNT at room temperature; it increases by 31.8% by raising the mud temperature to 50 °C. Furthermore, significant improvements are seen in the rheological properties—such as yield point, filtration properties, and annular viscosity—of the CNTmodified drilling fluid compared to the base mud, which pushes forward their future development.