We present the results of a molecular dynamics simulation of the fusion inhibiting peptide carbobenzoxy-D-Phe-L-Phe-Gly interacting with N-methyldioleoylphosphatidylethanolamine (N-Me-DOPE) bilayers. Simulations have been carried out with the peptide C-terminus both in the neutral and negatively charged states. It appears that the insertion of the phenylalanyl side chains into the lipid hydrocarbon region causes a significant increase in the order parameters near the carbonyl region and a decrease in the water penetration in the head group region, rendering this region gel-like. The negatively charged C-termini helps to anchor the peptides at the bilayer-water interface and this enhances the ordering capability of the peptide. We suggest that the increase in lipid ordering could be the molecular mechanism for the observed fusion inhibition.