We report a 2-ns constant pressure molecular dynamics simulation of halothane, at a mol fraction of 50%, in the hydrated liquid crystal bilayer phase of dipalmitoylphosphatidylcholine. Halothane molecules are found to preferentially segregate to the upper part of the lipid acyl chains, with a maximum probability near the C(5) methylene groups. However, a finite probability is also observed along the tail region and across the methyl trough. Over 95% of the halothane molecules are located below the lipid carbonyl carbons, in agreement with photolabeling experiments. Halothane induces lateral expansion and a concomitant contraction in the bilayer thickness. A decrease in the acyl chain segment order parameters, S(CD), for the tail portion, and a slight increase for the upper portion compared to neat bilayers, are in agreement with several NMR studies on related systems. The decrease in S(CD) is attributed to a larger accessible volume per lipid in the tail region. Significant changes in the electric properties of the lipid bilayer result from the structural changes, which include a shift and broadening of the choline headgroup dipole (P-N) orientation distribution. Our findings reconcile apparent controversial conclusions from experiments on diverse lipid systems.