Sub-nanometer titania clusters have been homogeneously dispersed within double-wall carbon nantubes (DWNTs) with an inner diameter ranging from 1.0 to 1.5 nm. The confined titania exhibits a much higher activity than the titania particles attached on the outside walls of the DWNTs (the outside titania) in the epoxidation of propylene by H2O2. XPS, XANES and Raman spectroscopy data suggest electron transfer from titanium to the inner surfaces of the DWNTs. In contrast, no electron transfer has been observed for the outside titania. We also found that the extent of this confinement-induced electron transfer is temperature dependent. The enhanced activity of the confined titania clusters is likely attributed to their small sizes and the interaction with the DWNT surface. The synthesis method that we developed here can be readily applied to incorporation of other metal/metal oxide nanoparticles into carbon nanotubes.