We investigate the nitrogen substitutional impurity in semiconducting zigzag and metallic armchair single-wall carbon nanotubes using ab initio density functional theory. At low concentrations (less than 1 at. %), the defect state in a semiconducting tube becomes spatially localized and develops a flat energy level in the band gap. Such a localized state makes the impurity site chemically and electronically active. We find that if two neighboring tubes have their impurities facing one another, an intertube covalent bond forms. This finding opens an intriguing possibility for tunnel junctions, as well as the functionalization of suitably doped carbon nanotubes by selectively forming chemical bonds with ligands at the impurity site. If the intertube bond density is high enough, a highly packed bundle of interlinked single-wall nanotubes can form.