Understanding the mechanism of action of local anesthetics has been challenging. We previously showed that the local anesthetic phenylethanol (PEtOH) inhibits the function of serotonin(1A) receptor, which is a member of the G protein-coupled receptor family and a neurotransmitter receptor. With the objective of gaining insight into the molecular mechanism underlying the anesthetic (PEtOH) action, we monitored the organization and dynamics of hippocampal membranes using multiple fluorescent reporters, which include a molecular rotor (BODIPY-C-12) and a voltage sensitive probe (4-(2-(6-(dioctylamino)-2-naphthalenyl)ethenyl)-1-(3-sulfopropyl)-pyridinium inner salt) (di-8ANEPPS), besides pyrene. These interfacial membrane probes were chosen because membrane partitioning of PEtOH would be reflected in the membrane interfacial environment. Taken together, we report a reduction in dipole potential and microviscosity of hippocampal membranes, with a concomitant increase in lateral diffusion in the presence of PEtOH. The reduction in membrane dipole potential induced by PEtOH constitutes one of the first experimental demonstrations on the modulation of membrane dipole potential by local anesthetics. Our results assume significance in view of previous reports that correlate membrane-perturbing effects of local anesthetics to their anesthetic action. We envision that insights into the interaction of local anesthetics with membranes could serve as a crucial link in developing a comprehensive understanding of the molecular mechanisms involved in anesthesia.