Membrane lipids and cellular water (soft matter) are becoming increasingly recognized as key determinants of protein structure and function. Their influences can be ascribed to modulation of the bilayer properties or to specific binding and allosteric regulation of protein activity. In this review, we first consider hydrophobic matching of the intramembranous proteolipid boundary to explain the conformational changes and oligomeric states of proteins within the bilayer. Alternatively, membranes can be viewed as complex fluids, whose properties are linked to key biological functions. Critical behavior and nonideal mixing of the lipids have been proposed to explain how raft-like microstructures involving cholesterol affect membrane protein activity. Furthermore, the persistence length for lipid-protein interactions suggests the curvature force field of the membrane comes into play. A flexible surface model describes how curvature and hydrophobic forces lead to the emergence of new protein functional states within the membrane lipid bilayer.