Recent studies have shown that the traditional paradigm relying on hydrophobic effects is not adequate to describe membrane partitioning of amphiphilic solutes. To elucidate the thermodynamics and determine the role of the hydrophobic effect in the partitioning of small amphiphilic molecules into lipid bilayers, we have used titration calorimetry to directly measure the enthalpy, partition coefficients, and heat capacity change for the partitioning of a series of n-alcohols into lipid bilayers of several lipid compositions. The incremental thermodynamic quantities have been compared with model compound data for partitioning into bulk hydrocarbon solvents. We have found that there is a large negative heat capacity change upon partitioning, indicating a major contribution from the dehydration of nonpolar solute moieties; however, these hydrophobic effects also involve changes in lipid interactions with water in the interfacial region of the bilayer. In addition, we have found that the enthalpy effects are large, indicating that the partitioning process is accompanied by significant changes in the intralipid interactions within the bilayer. Cholesterol has a large effect on partitioning thermodynamics, making both the enthalpy and entropy contributions significantly more positive, resulting in a relatively small net decrease in the negative free energy of partitioning. These results demonstrate that while hydrophobic interactions play a major role in partitioning, the process is considerably more complex than the partitioning of model compounds between water and bulk hydrocarbons, with major contributions coming from changes in the structure and thermodynamic state of the bilayer, including the interfacial region. The results are discussed in terms of both the thermodynamics of partitioning and the role of lipid properties in membrane function. Our results support a paradigm for membrane structure and function in which the thermodynamic state, which is a function of lipid composition, temperature, and dissolved solutes, is a critical membrane property.