Dimethyl sulfoxide (DMSO) is a small amphiphilic molecule which is widely employed in cell biology as an effective penetration enhancer, cell fusogen, and cryoprotectant. Despite the vast number of experimental studies, the molecular basis of its action on lipid membranes is still obscure. A recent simulation study employing coarse-grained models has suggested that DMSO induces pores in the membrane (Notman, R.; Noro, M.; O'Malley, B.; Anwar, J. J. Am. Chem. Soc. 2006,128,13982-13983). We report here the molecular mechanism for DMSO's interaction with phospholipid membranes ascertained from atomic-scale molecular dynamics simulations. DMSO is observed to exhibit three distinct modes of action, each over a different concentration range. At low concentrations, DMSO induces membrane thinning and increases fluidity of the membrane's hydrophobic core. At higher concentrations, DMSO induces transient water pores into the membrane. At still higher concentrations, individual lipid molecules are desorbed from the membrane followed by disintegration of the bilayer structure. The study provides further evidence that a key aspect of DMSO's mechanism of action is pore formation, which explains the significant enhancement in permeability of membranes to hydrophilic molecules by DMSO as well as DMSO's cryoprotectant activity. The reduction in the rigidity and the general disruption of the membrane induced by DMSO are considered to be prerequisites for membrane fusion processes. The findings also indicate that the choice of DMSO concentration for a given application is critical, as the concentration defines the specific mode of the solvent's action. Knowledge of the distinct modes of action of DMSO and associated concentration dependency should enable optimization of Current application protocols on a rational basis and also promote new applications for DMSO.