Thermal stress and moisture absorption can cause a synergetic negative impact on kraft paper. Among various approaches for improving the dielectric properties of kraft paper, nanotechnology has had promising results. However, the hydrophilicity of most metal oxide nanoparticles renders nanomodified kraft paper more vulnerable to thermal stress and moisture, thereby inducing degradation. In nanomodified kraft paper research, the use of TiO2 nanoparticles has yielded the most promising results. The major shortfall, however, is the hydrophilicity of TiO2. This work investigated surface modifications of rutile-TiO2 nanoparticles (NPs) for improved hydrophobicity and thermal stability. Rutile-TiO2 NPs is a nontoxic metal oxide that can withstand high temperature and is stable in chemical reactions. Two cases of surfactants were used—alkyl ketene dimer (AKD) and alkenyl succinic anhydride (ASA). The intention was to increase heat resistance and reduce the surface free energy of the rutile-TiO2 NPs. The impacts of the surface modifiers on the rutile-TiO2 NPs were characterised using FT-IR, muffle furnace, analytical weight balance, and TGA. It was discovered that new functional groups were formed on the modified NPs examined through FT-IR spectra. This indicates new chemical bonds, introduced through the surface modification. The unmodified rutile-TiO2 NPs absorbed moisture, increasing their mass by 3.88%, compared with the modified nanoparticles, which released moisture instead. TGA analysis revealed that AKD- and ASA-modified rutile-TiO2 needed higher temperatures than the unmodified rutile-TiO2 to markedly decompose. AKD, however, gave better performance than ASA in that regard. As an example, those modified with 5% AKD sustained a 45% higher temperature than the pure TiO2 nanoparticles. Furthermore, in both cases of the surfactants, the higher the percent of surfactant content was, the more thermally stable the nanoparticles became. This work demonstrates the possibility of fabricating rutile-TiO2 NPs to give improved hydrophobicity and thermal stability for possible dielectric applications such as in kraft paper for power transformer insulation.