Hydrophobically modified, water-soluble terpolymers based on maleic anhydride and ethyl vinyl ether were evaluated for their ability to act as a host for hydrophobic molecules in water. Alternating copolymers of maleic anhydride and ethyl vinyl ether were reacted with primary amines in organic solvent, then hydrolysed in a dilute aqueous base. This modification technique allows precise, stoichiometric substitution with hydrophobic groups and accessibility to a wide range of association-driven conformations in aqueous media. The degree of naphthalene sequestration in solutions of hydrophobically modified poly(sodium maleate-alt-ethyl vinyl ether) was found to depend on hydrophobic modification, electrolyte concentration, and pH. As octyl substitution increased from 10 to 50 mol%, micellar domains formed by intrapolymer hydrophobic associations became more compact and mobility constraints within micelles hindered phase transfer. Increasing sodium chloride concentration and decreasing pH also enhanced micellar organization. The presence of hydrophobic groups on the micellar surface in some cases was postulated to account for the enhanced recruitment of naphthalene into hydrophobic domains. Data from these studies are discussed in relation to previous viscosity and fluorescence studies that confirm the conformational changes driving the transition from an extended polyelectrolyte to a compact, globular structure.