Water-soluble nanographite was prepared by in situ emulsion polymerization using methacrylate as polymeric monomer. The dispersion stability and dispersion state of graphite particles were evaluated by UV-visible spectrophotometry and scanning electron microscopy, respectively. The water-soluble nanographite was then added into the water-based cutting fluid as lubricant additive. The lubrication performance of water-based cutting fluid with the nanographite additive was studied on four-ball friction tester and surface tensiometer. Results indicate that the modification method of in situ emulsion polymerization realizes the uniform and stabilized dispersion of nanographite in aqueous environment. The optimal polymerization condition is 70°C (polymerization temperature) and 5 h (polymerization time). The addition of nanographite decreases the friction coefficient and wear scar diameter by 44% and 49%. Meanwhile, the maximum non-seizure load (PB) increases from 784 to 883 N, and the value of surface tension (32.76 × 10−3 N/m) is at low level. Nanographite additive improves apparently the lubrication performance of water-based cutting fluid.