We are currently undertaking a program aimed at identifying previouslyunrecognised late-type dwarfs within 20 parsecs of the Sun. As a first step, we have cross-referenced Luyten's NLTT proper motion catalogue against the second incremental release of the 2MASS Point Source Catalogue, and use optical/infrared colours, derived by combining Luytens's m r estimates with 2MASS data, to identify candidate nearby stars. This paper describes the definition of a reference sample of 1245 stars, and presents a compilation of literature data for over one-third of the sample. Only 274 stars have trigonometric parallax measurements, but we have used data for nearby stars with well-determined trigonometric parallaxes to compute colour-magnitude relations in the (M V , (V-K)), (M V , (V-I)) and (M I , (I-J)) planes, and use those relations to determine photometric parallaxes for NLTT stars with optical photometry. Based on the 2MASS JHK S data alone, we have identified a further 42 ultracool dwarfs ((J-K S > 0.99) and use (J-K S ) colours to estimate photometric parallaxes. Combining these various techniques, we identify 308 stars with formal distances of less than 20 parsecs, while a further 46 have distance estimates within 1σ of our survey limit. Of these 354 stars, 75, including 39 of the ultracool dwarfs. are new to nearby star catalogues. Two stars with both optical and near-infrared photometry are potential additions to the immediate Solar Neighbourhood, with formal distance estimates of less than 10 parsecs.In the near future, 2MASS will provide broadband J, H and K s photometry for sources over the full celestial sphere. The J and H passbands match the standard Johnson system, while the K s passband, truncated at long wavelengths to avoid terrestial H 2 O absorption, is described and calibrated by Persson et al. (1998). The effective wavelength of the K S filter is 2.15µm, as opposed to 2.19µm for the standard system, but Carpenter's (2001) analysis reveals only minor differences with respect to standard systems. In particular, Carpenter findsThese differences are negligible compared with other sources of uncertainty in the present analysis, and we adopt the convention K S =K in this series of papers.The 2MASS catalogue includes sources which have a signal-to-noise ratio exceeding 7, corresponding to typical limiting magnitudes of J∼ 16.1, H∼ 15.2 and K s ∼ 14.9 in uncrowded fields. M dwarfs within 20 parsecs have near-infrared magnitudes significantly brighter than these limits -for example, even an M9.5 dwarf, comparable to BRI0021 or LP 944-20, has M K ∼ 11.1, or K s ∼ 12.6 at a distance of 20 parsecs. At those magnitudes, the typical photometric uncertainties are 0.02-0.04 magnitudes.2MASS survey observations were completed in early 2001, but at the time of writing, data are available publicly for only 46.5% of the sky via the second incremental release. The results described in this paper, and in subsequent papers in the series, rest on the latter dataset. In addition to photometry, the catalogue provides astromet...