In the summer of 2001, Joe Kinnear signed Nicholls for Luton Town for an initial fee of £25,000, rising to £150,000 depending on appearances. He was a pivotal player in Luton's promotion season of 2001–02, becoming the club captain and playing in 42 games. At Luton, Nicholls managed for several seasons to avoid the injuries that dogged him at previous clubs and became the "heart and soul of the team" according to Kinnear. In the 2003–04 season he became injured and missed 5 months of the campaign. After the injury he returned to his preferred central midfield position and contributed to Luton's 10th-place finish.