The ligands of certain G-protein coupled receptors (GPCRs) reach their target from the lipid bilayer. We have probed the organization and dynamics of a such lipid bilayer-penetrating ligand, the endogeneous ligand for kappa-opioid receptor (KOR) dynorphin A (1-17) (DynA), using molecular dynamics (MD) simulations of DynA in cholesterol-depleted and cholesterol-enriched model membranes. DynA penetrates deep inside fluid dimyristoylphosphatidylcholine (DMPC) bilayers, and resides with its N-terminal helix at ∼6Å away from the bilayer mid-plane, in a tilted orientation, at ∼50°C angle with respect to membrane normal. In contrast, inside DMPC/Chol membranes with 20% cholesterol (DMPC/Chol) the DynA is situated ∼5Å higher, i.e. closer to the lipid/water interface and in a relatively vertical orientation. Compared to the DMPC/Chol membranes, the DMPC membrane shows greater thinning around the insertion and permits a stronger influx of water inside the hydrocarbon. Relating these results to data about key GPCR residues that have been implicated in interactions with membrane-inserting GPCR ligands, we conclude that the position of DynA correlates with generally proposed GPCR ligand entry pathways in DMPC/Chol, but not in pure DMPC. Our predictions provide a possible mechanistic explanation as to why DynA binding to KOR, and the subsequent activation of the receptor, is facilitated in cholesterol-enriched environments. To obtain a quantitative description of DynA-induced membrane deformations we used a continuum theory of membrane deformations (CTMD) that is based on hydrophobic matching. Comparison with the MD results suggests that the lipid tail packing energy makes a significant contribution to predicting equilibrium membrane shape around DynA in the DMPC/Chol mixtures. This energy term was therefore introduced in the CTMD framework, thereby extending the applicability of the CTMD to quantify membrane remodeling by multi-helical proteins.