Direct current (DC) arc-discharge method is used to fabricate Sn-carbon nanotube nanocapsules (Sn-CNT NCs). The Sn is partially-filled into multi-walled CNTs, as an ideal configuration for the active materials as lithium-ion battery anode; Sn nanoparticles provide large storage capacity and CNTs confine and accommodate the volume expansion of Sn as well as provide the conductive network and contribute their own capacity. Large initial specific capacity and stable cyclic performance are identified in the electrochemical tests. Such novel nanostructure provides a solution to the volume expansion issue of a high-capacity electrode.