A novel water-dispersible polyaniline (PANI)/graphene composite was prepared by the in situ polymerization of aniline on the surface of poly(styrenesulfonic acid) (PSS) coated graphene nanosheets (PSS-GR). The characterization of atomic force microscopy (AFM), transmission electron microscopy (TEM), Raman spectroscopy and Fourier transform infrared (FTIR) spectroscopy confirmed the successful synthesis of PANI/PSS-GR composites and strong interaction between PANI and PSS-GR. The as-synthesized PANI/PSS-GR composite is readily dispersible in water and forms a homogeneous aqueous dispersion which is stable for more than one month. More interestingly, PSS-GR can dope PANI effectively and shift its electroactivity to a neutral or even alkaline environment, making them promising candidates for biological application. In addition, the PANI/PSS-GR composite shows improved electrical conductivity and electrochemical stability compared to the neat polyaniline. Furthermore, the potential use of this composite for detection of ascorbic acid (AA) was investigated. A low detection limit of 5×10−6 M and a linear detection range between 1×10−4 M and 1×10−3 M was attained, indicating the high electrocatalytic ability of this composite. Anticipatedly, the synthesized composite will find promising applications as a novel electrode material in sensors and other devices in virtue of their outstanding characteristics of water-dispersibility, good cycle stability, electroactivity in neutral solution and excellent electrocatalytic ability.