Aromatic groups can engage in an interesting class of noncovalent interactions termed pi-pi interactions, which play a pivotal role in stabilizing a variety of molecular architectures, including nucleic acids, proteins, and supra molecular assemblies. When the aromatic compounds interact with each other in an aqueous environment, their association is facilitated by the hydrophobic effect-the trend of nonpolar solutes to aggregate in a polar solution. To develop an indepth understanding of hydrophobic association, we investigate in the present work pi-pi interactions in water, employing as a paradigm the benzene dimer. Using DFT-CES, a mean-field QM/MM method recently developed by our group, we describe the benzene solute at a quantum-mechanical level. Full consideration of detailed solute-electron density enables an optimal description of the solute-solvent interactions, leading to an accurate prediction of hydration free energies. In pi-stacking of benzene, we find an entropic stabilization associated with the shrinkage of the solvent- excluded volume, which agrees with the theory of hydrophobic effect at subnanoscales. However, at the equilibrium binding distance of the benzene dimer, we find that the entropic stabilization nearly cancels out due to the enthalpic cost required for dewetting the internal space. Such an enthalpy-entropy compensation leads the association free energy to be predominantly dictated by the solute-solute interaction enthalpy. The present work offers new insight into the mechanistic role of water and the primary thermodynamic driving force of hydrophobic association.