Femtosecond laser radiation has been used to ablate a gold target in aqueous beta-cyclodextrin (CD) solutions to produce stable gold nanoparticle colloids with extremely small size (2 to 2.4 nm) and size dispersion (1 to 1.5 nm). On the basis of XPS and zeta-potential measurements, we propose a model involving chemical interactions between the gold and the CDs. The model includes both the hydrophobic interaction of the Au0 with the interior cavity of the CD and the hydrogen bonding of O- groups on the partially oxidized gold surface with -OH groups of the CDs.