Abstract: Wellbore instability, especially drilling with water-based drilling fluids (WBDFs) in complex shale formations, is a critical challenge for oil and gas development. The purpose of this paper is to study the feasibility of using hydrophobically modified silica nanoparticle (HMN) to enhance the comprehensive performance of WBDFs in the Xinjiang Oilfield, especially the anti-collapse performance. The effect of HMN on the overall performance of WBDFs in the Xinjiang Oilfield, including inhibition, plugging, lubricity, rheology, and filtration loss, was studied with a series of experiments. The mechanism of HMN action was studied by analyzing the changes of shale surface structure and chemical groups, wettability, and capillary force. The experimental results showed that HMN could improve the performance of WBDFs in the Xinjiang Oilfield to inhibit the hydration swelling and dispersion of shale. The plugging and lubrication performance of the WBDFs in the Xinjiang Oilfield were also enhanced with HMN based on the experimental results. HMN had less impact on the rheological and filtration performance of the WBDFs in the Xinjiang Oilfield. In addition, HMN significantly prevented the decrease of shale strength. The potential mechanism of HMN was as follows. The chemical composition and structure of the shale surface were altered due to the adsorption of HMN driven by electrostatic attraction. Changes of the shale surface resulted in significant wettability transition. The capillary force of the shale was converted from a driving force of water into the interior to a resistance. In summary, hydrophobic nanoparticles presented a favorable application potential for WBDFs.