The tribological characteristics of carbon fiber reinforced polymer composites under distilled-water-lubricated-sliding and dry-sliding against stainless steel were comparatively investigated. Scanning electron microscopy (SEM) was utilized to examine composite microstructures and modes of failure. The typical chemical states of elements of the transfer film on the stainless steel were examined with X-ray photoelectron spectroscopy (XPS). Wear testing and SEM analysis show that all the composites hold the lowered friction coefficient and show much better wear resistance under water lubricated sliding against stainless steel than those under dry sliding. The wear of composites is characterized by plastic deformation, scuffing, micro cracking, and spalling under both dry-sliding and water lubricated conditions. Plastic deformation, scuffing, micro cracking, and spalling, however, are significantly abated under water-lubricated condition. XPS analysis conforms that none of the materials produces transfer films on the stainless steel counterface with the type familiar from dry sliding, and the transfer of composites onto the counterpart ring surface is significantly hindered while the oxidation of the stainless steel is speeded under water lubrication. The composites hinder transfer onto the steel surface and the boundary lubricating action of water accounts for the much smaller wear rate under water lubrication compared with that under dry sliding. The easier transfer of the composite onto the counterpart steel surface accounts for the larger wear rate of the polymer composite under dry sliding.