Water plays a fundamental role in the folding, structure, dynamics, and function of proteins and peptides. The extracellular N-terminal domain of chemokine receptors is crucial in mediating binding affinity, receptor selectivity, and regulating function. The flexible N-terminal domain becomes ordered in membranes and membrane-mimetic assemblies, thereby indicating that the membrane could play an important role in regulating CXC chemokine receptor 1 (CXCR1) function. In view of the role of hydration in lipid protein interactions in membranes, we explored the organization and dynamics of a 34-mer peptide of the CXCR1 N-terminal domain in reverse micelles by utilizing a combination of fluorescence-based approaches and circular dichroism spectroscopy. Our results show that the secondary structure adopted by the CXCR1 N-domain is critically dependent on hydration. The tryptophan residues of the CXCR1 N-domain experience motional restriction and exhibit red edge excitation shift (REES) upon incorporation in reverse micelles. REES and fluorescence lifetime exhibit reduction with increasing reverse micellar hydration. Time-resolved fluorescence anisotropy measurements reveal the effect of hydration on peptide rotational dynamics. Taken together, these results constitute the first report demonstrating modulation in the organization and dynamics of the N-terminal domain of a chemokine receptor in a membrane-like environment of varying hydration. We envisage that these results are relevant in the context of hydration in the function of G protein-coupled receptors.