Biocompatible and colloidally stable gold nanorods (GNRs) with well-defined plasmonic properties are essential for biomedical and theranostic applications. The as-synthesized GNRs using the seed-mediated method are stabilized by the surfactant, cetyltrimethylammonium bromide (CTAB), which is known for its cytotoxicity in many cell lines. Biocompatible GNRs synthesized using known protocols exhibit some extent of cytotoxicity and colloidal instability because of the incomplete removal of CTAB. We report a facile method for the efficient removal of CTAB molecules with 1,2-dimyristoyl-sn-glycero-3-phosphocholine (DMPC) phospholipid molecules, which are naturally present in cell membranes. The kinetics of the ligand exchange process is studied using surface-enhanced Raman scattering (SERS) and corroborated with matrix-assisted laser desorption/ionization (MALDI) mass spectrometry. From colloidal stability studies using dynamic light scattering (DLS) and UV-Vis spectroscopy, the optimal lipid concentration and duration required for the successful ligand exchange of CTAB by DMPC are reported. Using thermogravimetric analysis, the surface concentration of DMPC on colloidally stable GNRs is found to be approximately 9 molecules per nm2. The 3-(4,5-dimethylthiozol-2-yl)-2,5-diphenyl tetrazolium bromide (MTT) and lactate dehydrogenase (LDH) assays show that the surface-modified DMPC-GNRs have significantly better biocompatibility than those of CTAB-GNRs. Studies on the ligand exchange, colloidal stability and biocompatibility of DMPC-GNRs with aspect ratios ranging from 2.2 to 4.2 demonstrate the robustness of the proposed method. The results provide insights into the important factors to be considered while designing biocompatible GNRs suitable for applications in nanomedicine.