Carbon nanotubes (CNTs) were covalently functionalized via 1,3-dipolar cycloaddition reaction under microwave conditions. The functionalized CNTs were characterized by thermogravimetric analysis (TGA), X-ray photoelectron spectroscopy (XPS), N2 adsorption isotherms and Raman spectroscopy. The surface concentration of phenolic hydroxyl groups on the surface of CNTs was adjusted by varying the reaction temperature. In addition, we prepared Pd nanoparticle/CNT (Pd NP/CNT) nanocomposites through strong electrostatic adsorption and hydrogen reduction. The results indicated that the functional groups could not only improve the dispersion of CNTs in water, but also enhance the interaction between Pd precursors and CNTs, thus preventing small Pd NPs (average diameter of 1.5 nm) from agglomerating. Furthermore, the Pd NP/CNT-220 nanocomposites showed high catalytic activity for the reduction of 4-nitrophenol. The turnover frequency (TOF) of this catalyst was up to 18 min(-1), which was attributed to the small size and uniform distribution of Pd NPs on the surface of CNTs.