Membrane tension modulates cellular processes by initiating changes in the dynamics of its molecular constituents. To quantify the precise relationship between tension, structural properties of the membrane, and the dynamics of lipids and a lipophilic reporter dye, we performed atomistic molecular dynamics (MD) simulations of DiI-labeled dipalmitoylphosphatidylcholine (DPPC) lipid bilayers under physiological lateral tensions ranging from −2.6 mN m−1 to 15.9 mN m−1. Simulations showed that the bilayer thickness decreased linearly with tension consistent with volume-incompressibility, and this thinning was facilitated by a significant increase in acyl chain interdigitation at the bilayer midplane and spreading of the acyl chains. Tension caused a significant drop in the bilayer's peak electrostatic potential, which correlated with the strong reordering of water and lipid dipoles. For the low tension regime, the DPPC lateral diffusion coefficient increased with increasing tension in accordance with free-area theory. For larger tensions, free area theory broke down due to tension-induced changes in molecular shape and friction. Simulated DiI rotational and lateral diffusion coefficients were lower than those of DPPC but increased with tension in a manner similar to DPPC. Direct correlation of membrane order and viscosity near the DiI chromophore, which was just under the DPPC headgroup, indicated that measured DiI fluorescence lifetime, which is reported to decrease with decreasing lipid order, is likely to be a good reporter of tension-induced decreases in lipid headgroup viscosity. Together, these results offer new molecular-level insights into membrane tension-related mechanotransduction and into the utility of DiI in characterizing tension-induced changes in lipid packing.