Understanding the role of water in governing the kinetics of the self-assembly processes of amphiphilic peptides remains elusive. Here, we use a multistage atomistic-coarse-grained approach, complemented by circular dichroism/infrared spectroscopy and dynamic light scattering experiments to highlight the dual nature of water in driving the self-assembly of peptide amphiphiles (PAs). We show computationally that water cage formation and breakage near the hydrophobic groups control the fusion dynamics and aggregation of PAs in the micellar stage. Simulations also suggest that enhanced structural ordering of vicinal water near the hydrophilic amino acids shifts the equilibrium towards the fibre phase and stimulates structure and order during the PA assembly into nanofibres. Experiments validate our simulation findings; the measured infrared O–H bond stretching frequency is reminiscent of an ice-like bond which suggests that the solvated water becomes increasingly ordered with time in the assembled peptide network, thus shedding light on the role of water in a self-assembly process.