In an effort to gain insight into the effect of carbon nanotube confinement on reaction enthalpies and activation energies, calculations using hybrid density functional theory have been carried out for the Menshutkin S(N)2 reaction in gas phase and inside carbon nanotubes. The polarizability of the carbon nanotubes provides an interaction mechanism, which leads to the stabilization of confined dipolar species. Inside hydrogen-terminated (8,0) and (9,0) carbon nanotubes, the activation energy and reaction endothermicity for the Menshutkin SN2 reaction are significantly reduced compared to those in the gas phase. Polarizable continuum models, using dielectric constants calculated from the carbon nanotube polarizabilities, are found to provide results in remarkable agreement with all electron nanotube-confined calculations, confirming the stabilization mechanism and offering a cost-effective approach for further exploration of the effects of the carbon nanotube environment. Overall, the effect of carbon nanotube confinement on reaction enthalpies closely resembles solvation in a low-dielectric solvent. Therefore, chemical reactions in which there is a separation of charge along the reaction coordinate may be enhanced inside fullerene-based materials because of their large electronic polarizabilities.