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We propose a new method based on surfactant-free aqueous/alcoholic dispersion polymerization, which enables the encapsulation of nanoparticles in polymer latex. The mechanism of this approach is investigated in the preparation of carbon black (CB) incorporated polystyrene (PS) composite latex. First, commercial grade MOGUL® L CB is grafted with reactive silane coupling agents through a sol–gel reaction and is finely dispersed in the polar medium with dissolved monomer. Then, the ionic initiator is added to the system to start the polymerization. The reactive functional groups introduced onto the CB surface enable its participation into the nucleation and surface polymerization, leading to the well-defined CB-encapsulated PS composite latex structure. The efficiency of CB nanoparticle encapsulation is correlated to the extent of association/aggregation among the nuclei and CB nanoparticles during nucleation, which is found to be proportional to the polarity of the medium. The thickness of the polymer shell is controlled by tuning the weight ratio between carbon black and the monomer. Successful encapsulation of CB particles was demonstrated by transmission electron microscopy (TEM), scanning electron microscopy (SEM), thermogravimetric analysis (TGA), and X-ray photoelectron spectroscopy (XPS). It is demonstrated that this new polymerization technique can be universally utilized for the preparation of various kinds of nanoparticle-encapsulated polymer composite latexes up to micron size with a high loading of nanoparticles. The effect of various factors on this new approach is investigated, and a possible mechanism is also presented.