This study examined the interactions between Daphnia magna and a water-soluble, lysophophatidylcholine coated single-walled carbon nanotube. D. magna were able to ingest the nanotubes through normal feeding behavior and utilize the lysophophatidylcholine coating as a food source. D. magna were able to modify the solubility of the nanotube, likely through digestion of the lipid coating. This study provides evidence of biomodification of a carbon-based nanomaterial by an aquatic organism. The modification significantly altered the physical properties of the nanomaterial in freshwater. Acute toxicity was observed only in the highest test concentrations. These are important findings related to determining the behavior and potential toxicity of coated nanomaterials released into the environment.