Trimethylamine N-oxide (TMAO) is a naturally occurring protecting osmolyte that stabilizes the folded state of proteins and also counteracts the destabilizing effect of urea on protein stability. Experimentally, it has been inferred that TMAO is preferentially excluded from the vicinity of protein surfaces. Here, we combine computer modeling and experimental measurements to gain an understanding of the mechanism of the protecting effect of TMAO on proteins. We have developed an all-atom molecular model for TMAO that captures the exclusion of TMAO from model compounds and protein surfaces, as a consequence of incorporating realistic TMAO-water interactions through osmotic pressure measurements. Osmotic pressure measurements also suggest no significant attraction between urea and TMAO molecules in solution. To obtain an accurate potential for molecular simulations of protein stability in TMAO solutions, we have explored different ways of parametrizing the protein/osmolyte and osmolyte/osmolyte interactions by scaling charges and the strength of Lennard-Jones interactions and carried out equilibrium folding experiments of Trp-cage miniprotein in the presence of TMAO to guide the parametrization. Our calculations suggest a general principle for preferential interaction behavior of cosolvents with protein surfaces--preferentially excluded osmolytes have repulsive self-interaction given by osmotic coefficient φ > 1, while denaturants, in addition to having attractive interactions with the proteins, have favorable self-interaction given by osmotic coefficient φ < 1, to enable preferential accumulation in the vicinity of proteins.