Beta-cyclodextrin (beta-CD) forms a 2 : 1 inclusion complex with the anion of bis(2,4,6-trihydroxyphenyl)squaraine dye (Sq), in aqueous solutions, bringing about a significant enhancement in the fluorescence yield (ca. 90-fold) and the stability of the dye anion. Apart from the effect of the hydrophobic environment and the decrease in rotational freedom brought about by beta-CD encapsulation, intramolecular hydrogen bonding between the OH groups on the phenyl rings and the oxygen atoms in the central cyclobutane ring in the anion guest molecule can significantly contribute to the stiffening of the molecule in the excited state. In the absence of beta-CD, intermolecular hydrogen bonding with solvent molecules disrupts the intramolecular hydrogen-bonding processes, bringing about a decrease in the fluorescence yield of the anion.