Water dynamics in the hydration shell of the peripheral membrane protein annexin B12 were studied using MD simulations and Overhauser DNP-enhanced NMR. We show that retardation of water motions near phospholipid bilayers is extended by the presence of a membrane-bound protein, up to around 10 Å above that protein. Near the membrane surface, electrostatic interactions with the lipid head groups strongly slow down water dynamics, whereas protein-induced water retardation is weaker and dominates only at distances beyond 10 Å from the membrane surface. The results can be understood from a simple model based on additive contributions from the membrane and the protein to the activation free energy barriers of water diffusion next to the biomolecular surfaces. Furthermore, analysis of the intermolecular vibrations of the water network reveals that retarded water motions near the membrane shift the vibrational modes to higher frequencies, which we used to identify an entropy gradient from the membrane surface toward the bulk water. Our results have implications for processes that take place at lipid membrane surfaces, including molecular recognition, binding, and protein-protein interactions.