With the objective of understanding the utility of β-cyclodextrin (β-CD) as a carrier system, we have investigated its interactions with a few near-infrared absorbing squaraine dyes (i.e., 1a,b and 2a,b) through absorption and steady-state and time-resolved fluorescence techniques. The addition of β-CD to the phloroglucinol dyes 1a,b resulted in a significant bathochromic shift in absorption, together with a ca. 1.5-2.5-fold enhancement in fluorescence intensity, whereas for the aniline-based dyes 2a,b, a hypsochromic shift in the absorption and a ca. 5-12-fold fluorescence enhancement were observed in a 10% (v/v) ethanol/water mixture. Benesi-Hildebrand analysis showed that both the dyes 1a,b and 2a,b form 2:1 stoichiometric complexes with β-CD. The complex formation was confirmed by competitive binding analysis employing adamantyl-1-carboxylic acid (ACA) and adamantyl-1-ammonium chloride (ADAC). The displacement of the dyes 1a,b and 2a,b from the [dye-β-CD] complex by ADAC and ACA unambiguously establishes the encapsulation of these dyes in the hydrophobic nanocavity of β-CD. Uniquely, the formation of the inclusion complexes with β-CD provides unusual protection from nucleophilic attack by aminothiols such as cysteine and glutathione for dyes 1a,b, whereas negligible protection was observed for dyes 2a,b. These results demonstrate the substituent-dependent encapsulation of potentially useful squaraine dyes in β-CD, thereby indicating its potential as a carrier system for the squaraine dyes 1a,b useful in photodynamic therapy.