The ability to exfoliate graphene in aqueous systems is critical for many applications. Peptide/materials recognition offers a multipurpose strategy for realizing such exfoliation and also organization and activation of 2D materials; however, lack of fundamental insights limits progress. Here we show that a graphene-binding peptide can provide an unprecedented degree of graphene exfoliation in water. A fatty-acid modification of the peptide produces similar results while conferring a remarkable reduction in sheet damage. Molecular simulations provide detailed insights into key stages and offer an explanation for sheet protection. These findings open new vistas into the design of ligands for aqueous exfoliation, organization, and activation of 2D materials.