The interaction and diffusion of lithium atoms in a (5,5) carbon nanotube is studied using density-functional theory. The Li-nanotube interaction perpendicular to the tube axis for a single Li inside and outside the tube is calculated and compared with the Li-graphene interaction obtained using the same technique. Both interactions are similar in the repulsive region but exhibit differences in their attractive part. Nevertheless, they can be described using a common parametrization. The Li-Li interaction is calculated as a function of their separation inside the tube. This interaction is similar to a screened repulsive Coulomb potential at small separations. However, at larger separations, the Li-Li interaction does not vanish and shows residual oscillations. This repulsive long-ranged interaction favors concerted diffusion of many Li atoms compared to the independent diffusion of individual Li inside the tube.